Transcript

Hi, this is Viram from Vested and you’ve tuned into our series which talks about how the US stock market is structurally different from the Indian stock market. As part of this series, we will cover three topics:

  1. The Custodian versus the Depository model
  2. Fractional shares
  3. IPO investing for retail investors

Today’s topic is the Custodian vs. the Depository model

In India, we follow what is called the Depository model. If you’re buying shares through a broker in India, your shares will be held at a Depository either CDSL or NSDL. It is the ultimate responsibility of the Depository to ensure that the shares are held safely.

These shares are in electronic form in an account called a demat account. What’s important to note is that the account at the Depository is under your name. This means that you get direct communication from CDSL or NSDL and you can also go to their website to verify your holdings directly.

Now, the structure that the US stock markets follow is a little different – it’s the Custodian model. Under the Custodian model, the broker is the one who is responsible for the safety of the shares versus CDSL/NSDL. In India, the broker is the one who appoints a Custodian for the safekeeping of the shares.

Basically, the Custodian acts like a locker or a vault that the broker hires. This concept is called ‘in street name’ because the Custodian is holding the broker’s clients’ shares under the broker’s name.

Custodians in the US are the likes of Citibank and JPMorgan that hold billions or trillions of dollars.

In the US though unlike in India, the broker is the ultimate source of truth to be able to verify your securities or holdings. The SEC has strict oversight to ensure that the investors’ interests are protected. To add to it, every brokerage account is insured by the Securities Investor Protection Corporation by up to $500,000.

So that were the basic differences between the Depository and the Custodian model.

Stay tuned for the second and third part of the series that focuses on fractional shares and investing in IPOs across both markets.

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Our team members at Vested may own investments in some of the aforementioned companies/assets. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for an investor’s portfolio. Note that past performance is not indicative of future returns. Investing in the stock market carries risk; the value of your investment can go up, or down, returning less than your original investment. Tax laws are subject to change and may vary depending on your circumstances.

This article is meant to be informative and not to be taken as an investment advice, and may contain certain “forward-looking statements,” which may be identified by the use of such words as “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “potential” and other similar terms. Examples of forward-looking statements include, without limitation, estimates with respect to financial condition, market developments, and the success or lack of success of particular investments (and may include such words as “crash” or “collapse”). All are subject to various factors, including, without limitation, general and local economic conditions, changing levels of competition within certain industries and markets, changes in interest rates, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors that could cause actual results to differ materially from projected results.

This video is meant to be informative and not to be taken as an investment advice and may contain certain “forward-looking statements” which may be identified by the use of such words as “believe”, “expect”, “anticipate”, “should”, “planned”, “estimated”, “potential” and other similar terms. Examples of forward-looking statements include, without limitation, estimates with respect to financial condition, market developments, and the success of or lack of success of particular investments (and may include such words as “crash” or “collapse”.) All are subject to various factors, including, without limitation, general and local economic conditions, changing levels of competition within certain industries and markets, changes in interest rates, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors that could cause actual results to differ materially from projected results.