Custody Agreements

Definition:

In the context of an IPO, the agreement stemming from when sellers (shareholders) place their shares with a Custodian and provide powers of attorney to allow the Custodian to deal with the shares as part of the offering process. This ensures that there is certainty of delivery at the Closing and makes it easier for the underwriters to deal with the shares because there is only one point of contact. An early Custody Agreement assures the underwriter that there is a better chance that the Selling Shareholders will not back out later in the process. Because a Custody Agreement means that the underwriter must only deal with the Custodian at Closing, it is especially helpful to the underwriter when there are a number of individuals who are the Selling Shareholders.

Return to Glossary