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NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Operational Aspects of Investment Management

In the context of operational aspects of investment management, which of the following best describes the role of a custodian for a client's securities portfolio?

A custodian safeguards a client's securities and handles settlement, collection of dividends and interest, and corporate action processing on the client's behalf. It does not decide what to buy or sell, because investment decisions belong to the portfolio manager or the client.

  1. ASafekeeping of securities and settlement of trades on behalf of the client, without taking investment decisionsCorrect
  2. BTaking discretionary investment decisions on behalf of the client
  3. CProviding a trading platform where buyers and sellers are matched
  4. DRating the credit quality of the securities held by the client

Explanation

A custodian holds securities in safe custody and handles settlement, income collection and corporate action processing for clients. It does not take investment decisions, which is the portfolio manager's role. Matching of orders is done by exchanges and credit rating is done by rating agencies.

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