A depository bank (in the U.S.) or depositary bank (in the European Union) is a specialist financial institution which, depending on jurisdiction, provides a host of services relating to investment in securities markets. These services include securities custody and processing and all other related ancillary services.
The depositary bank also provides instrumental services for issuers that seek to improve their access to capital, broaden their global investor base, and take advantage of available tools (such as depository receipts). For example, the issuer and the depositary bank enter into an agreement that defines the offering process and implementation stages and continues through to the ongoing management of an issuance program. A depositary bank represents a critical liaison between multiple parties- the issuer and brokers and investors, all in relation to the special depository services (investment in, and raising funds from, securities markets).
Depositary banks (also known as depositary entities) facilitate all the necessary transfers of securities in connection with a depositary receipt (DR) program. This involves the issuance of receipts (which are the equivalent of the security), and maintaining records of all transactions undertaken, in addition to a host of other services, on request of customers, such as distribution of dividends in the holder’s domestic currency, etc.
Although a depository (or a depository institution) is a financial institution that collects deposits from the public and manages various types of deposit accounts on behalf of their customers, while extending loans on the other side of the balance sheet, a depositary bank has completely a different meaning, as its primary function is facilitation of custody and processing of securities investment for customers, etc.
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