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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.

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Paul Tracy
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.