Part 24: Depository

In the financial world, the terms “depository” and “custodian” are often confused because they both deal with the safekeeping of securities. However, their roles are different. In our previous post, we discussed custodians, and now let’s clarify how they differ from a depository and understand how these two participants in the financial markets cooperate to make investing possible.

What Is a Depository?

A depository is a financial institution that provides the centralized safekeeping and registration of securities ownership. Picture it as the national-level “main warehouse” or registry, where the owners of all securities are recorded, whether in paper or electronic form. The main goal of a depository is to standardize the movement of securities and ensure the security of ownership change registration.

For example, in Armenia, this role is fulfilled by the Central Depository of Armenia.

Depository vs. Custodian: How They Cooperate

The difference between a depository and a custodian becomes clearer when we picture a two-tiered system.

• The Depository’s Role (The Central Warehouse) | The depository operates at the highest level of the financial system. It does not interact directly with individual investors. Instead, it provides master accounts and infrastructure for custodians (e.g., banks or brokerage firms). Its main function is to record the ownership of all securities at a national level. When a stock is sold, the depository updates its central registry to show that the security has moved from one custodian’s account to another.
• The Custodian’s Role | Your broker opens an account with a custodian, and that company (the custodian) holds your assets on your behalf. The custodian, in turn, holds your assets in its own account opened with the depository. The custodian performs all the administrative work for you.

Let’s use an analogy.

Imagine the depository is the registry for internet domain names (e.g., ICANN), which keeps the main list of all website names. It does not interact directly with any website owner. On the other hand, the custodian is your web hosting company (e.g., GoDaddy). You pay the hosting company to manage your website. This company acts as your agent, handling all the technical details, and registers your website name with the central registry on your behalf. In this example, ICANN is the depository, and GoDaddy is the custodian.

In the same way, your custodian safely holds your assets and manages all the details of your investments, but it does so through the centralized system provided by the depository. This two-tiered system guarantees that all assets are tracked with the highest level of security and transparency, making modern investing safe and efficient for everyone.

It’s important to remember that investments are subject to market fluctuations and carry inherent risks. Consider your financial goals and risk tolerance before investing.

Apricot Capital is regulated by the Central Bank of Armenia.

The examples in this text are for illustrative purposes only. This does not constitute investment advice or a recommendation to buy or sell any specific investment instrument. The past performance mentioned in this text is not indicative of future results.