Delivery Versus Payment (DVP)

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Delivery Versus Payment (DVP)

What is DVP?

Delivery versus payment (DVP) is a securities settlement method that ensures securities are delivered only when the corresponding payment has been made. From the buyer’s perspective it’s called DVP; from the seller’s perspective it’s commonly referred to as receive versus payment (RVP). The purpose is to eliminate the risk that one party delivers its leg of the transaction while the other does not.

Key takeaways

  • DVP requires simultaneous exchange of securities and cash, reducing principal and settlement risk.
  • It is widely used in modern securities settlement systems and central depositories.
  • Variants and related terms include RVP (seller view), cash on delivery (COD), and free of payment (FOP).

How DVP works

  • A settlement agent or central securities depository coordinates the transfer of securities and funds so both legs occur at the same time.
  • Standardized messaging (for example, SWIFT MT543 under ISO 15022) enables automated, low‑risk processing.
  • In practice, the buyer’s account is credited with securities only when the seller’s bank receives the agreed funds (via wire, direct credit, or other clearing method).

Why it matters — mitigating settlement risk

  • Principal risk arises when one party delivers securities or funds and the counterparty fails to deliver the other leg.
  • DVP reduces that risk by making delivery conditional on payment, limiting exposure during periods of market stress and improving market liquidity and confidence.
  • Legal and operational frameworks in many jurisdictions require or favor DVP procedures for institutional trades.

Special considerations and history

  • After the 1987 global equity market drop, central banks and industry groups strengthened settlement procedures, promoting DVP to prevent deliveries without payment.
  • Effective DVP implementation depends on reliable settlement infrastructure (central depositories, payment systems) and standardized messaging.

Related terms

  • Receive Versus Payment (RVP): The seller’s viewpoint of the same simultaneous settlement process.
  • Cash on Delivery (COD): Payment is made at the time goods or securities are delivered; similar concept when applied to trade settlements.
  • Free of Payment (FOP): Securities are transferred without an accompanying payment; this carries higher settlement risk compared with DVP.

Conclusion

DVP is a fundamental practice for safe, efficient securities settlement. By ensuring that payment and delivery occur together, DVP lowers default risk for both buyers and sellers and supports the stability and fairness of financial markets.

Sources

  • Keith Dickinson, Financial Markets Operations Management (John Wiley & Sons, 2015).
  • Bank for International Settlements, Delivery Versus Payment in Securities Settlement Systems.
  • Cornell University, Legal Information Institute — 12 CFR § 3.136 (Unsettled Transactions).