What is a custodial participant?
It's a person who confirms a stock exchange trade on behalf of his client. During the settlement the custodial participant has to affirm that the order placed by the stockbroker on behalf of his client is valid and that the trade can take place.
Where have you heard about custodial participants?
You'll be familiar with custodial participants if you trade on the stock exchange. The system of custodial intermediaries between an investor and the issuer of securities was developed partly in response to the paper crunch of 1987, when failed settlements threatened market disruption.
What you need to know about custodial participants.
When a client enters an order for trading on a stock exchange, the stockbroker receives his order and inserts it into the Stock Exchange Trading System. The trade is forwarded to the settlement system, and the custodial participant must then verify that the order is valid.
Custodians hold securities for safekeeping, but also offer a range of other services, and the fees they charge vary depending on the services the client desires. Many firms charge quarterly custody fees based on the aggregate value of the holdings.