Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Safekeeping Certificate

What it is:

A safekeeping certificate is a document that proves that a person owns a security or a certificate of deposit (CD).

How it works (Example):

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 it Matters:

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.