Pardon the ignorance, but I am not too keen on this topic so here it goes?

Should we have a safekeeping agreement with Banks from which we buy securities that physically never transfer to our Bank?

For example, we buy a government security through a correspondent bank and they send us an invoice/statement indicating the sale occurred. We never actually have physical custody of the security...do we need this so-called safekeeping agreement? And what, generally speaking does it state?


Thanks

Anyone able to help out on this? Maybe I should ask it be moved to the operations forum - someone might know there?

The Safekeeping agreement is usually provided by the financial institution providing the safekeeping. In your example eventhough you don't physically see the security, it exists, it is just delivered directly to the safekeeping institution per the delivery instructions you provided at time of purchase.

So the audit program is asking me to "determine whether written safekeeping agreements have been obtained." Should this be a seperate document? Is it included in our service contract? Does it basically say we buy, they hold? I'm not too sure what I'm looking for.

The safekeeping agreements I've seen were what I'll call a master agreement to cover all securities that you would want safekept with that financial institution. As each security was purchased and delivered to safekeeping a safekeeping receipt was created. Keep in mind you might have more than one financial institution safekeeping your investments and would therefore have more than one safekeeping agreement.