deliveryversuspayment

Delivery versus payment (DVP) is a settlement convention in securities markets that ensures the transfer of securities occurs only when corresponding payment is made. The mechanism is designed to minimize settlement risk, the risk that one party delivers securities while the other party fails to deliver payment.

In a typical DVP arrangement, trade information is conveyed to a clearing organization and a central securities depository or custodian. The securities are prepared for delivery, and funds are arranged in a designated settlement account. The two settlement legs—the delivery of securities and the transfer of cash—are linked so that the securities are released to the buyer only if the payment is completed, and vice versa. Depending on the market and technology, the legs may be settled simultaneously or in a tightly coordinated sequence through electronic book-entry systems.

DVP is implemented through links between securities settlement systems and payment systems, often involving banks, custodians, or triparty agents and, in many markets, centralized clearing houses or depositories. It is commonly used for equities, fixed income, and government securities, and is a key feature of modern settlement infrastructures, including many international markets.

Benefits of DVP include reduced principal risk and improved settlement certainty for both buyers and sellers. While it does not eliminate all risk, DVP significantly lowers the risk that one party completes its side of the trade without the other side’s payment or delivery.

Related concepts include delivery versus payment in securities and payment versus payment arrangements that may apply in other markets, such as foreign exchange.