A global custody agreement, or GCA, is a legally binding agreement between a financial institution and an investor. The agreement sets out the terms and conditions under which the institution will hold and manage the investor’s assets, typically securities, in various markets around the world.
The purpose of a global custody agreement is to ensure that the investor’s assets are safe and secure, and that the institution can provide efficient and effective management of those assets. This includes handling the settlement of trades, holding and safekeeping of securities, and providing reporting and other services to the investor.
Key components of a global custody agreement may include:
– Asset servicing: This includes the administration of securities transactions, such as settlement, corporate actions, and income collection.
– Safekeeping: The institution holds the investor’s securities in custody, and is responsible for maintaining their physical and electronic records.
– Reporting: The institution provides regular reporting to the investor on the status of their assets, such as holdings, trades, and income received.
– Risk management: The institution is responsible for managing the risks associated with holding and managing the investor’s assets, including credit, market, and operational risk.
A global custody agreement is typically structured as a standalone agreement, but may also be incorporated into other agreements, such as asset management agreements or investment management agreements.
Global custody agreements are common among institutional investors, such as pension funds, endowments, and sovereign wealth funds, who invest in securities across multiple markets and jurisdictions. By outsourcing the management of their assets to a global custodian, these investors can benefit from economies of scale and access to expertise and technology that may not be available in-house.
In conclusion, a global custody agreement is a critical component of institutional investing, providing investors with the assurance that their assets are safe and properly managed. The agreement sets out the rights and responsibilities of the investor and the custodian, and establishes the framework for a successful and productive relationship.