What is a Safekeeping Certificate?
A safekeeping certificate is a document that proves that a person owns a security or a certificate of deposit (CD).
How Does a Safekeeping Certificate Work?
An American Depository Receipt (ADR) is one of the most common forms of safekeeping certificates. Issued by U.S. banks, ADRs are certificates that represent shares of a foreign stock owned by the issuing bank. The foreign shares are usually held in custody overseas, but the certificates trade in the United States. Through this system, a large number of foreign-based companies are actively traded on one of the three major U.S. equity markets (the NYSE, AMEX or Nasdaq).
Why Does a Safekeeping Certificate Matter?
Safekeeping certificates such as ADRs give U.S. investors the ability to easily purchase securities issued by foreign firms and they are typically much more convenient and cost-effective for domestic investors (versus purchasing stocks in overseas markets). And because many foreign firms are involved in industries and geographical markets where U.S. multinationals don't have a presence, investors often use safekeeping certificates to help themselves diversify on a much more global scale.