What is an Escrow Agreement?
An escrow agreement is a certificate from an approved bank guaranteeing that an indicated financial security is deposited at that particular bank.
How Does an Escrow Agreement Work?
John writes a call option for stock in company ABC. When John presents the escrow agreement to the bank, he is considered to have covered the asset. As a result, John will not have to meet margin call requirements at the bank.
Why Does an Escrow Agreement Matter?
Escrow agreements offer investors a safety net in the event of margin calls.