Delivery Versus Payment - DVP

Loading the player...

What is 'Delivery Versus Payment - DVP'

A securities industry settlement procedure in which the buyer's payment for securities is due at the time of delivery. Delivery versus payment (DVP) is a settlement system that stipulates that cash payment must be made prior to or simultaneously with the delivery of the security. Delivery versus payment is from the buyer's perspective; from the seller's perspective, this system is called receive versus payment (RVP). DVP/RVP requirements arose as a result of institutions being prohibited from paying money for securities before the securities were held in negotiable form.


Also known as delivery against payment (DAP), delivery against cash (DAC) and cash on delivery.

BREAKING DOWN 'Delivery Versus Payment - DVP'

A DVP settlement system ensures that delivery will occur only if a payment occurs. The system acts as a link between a funds transfer system and a securities transfer system. A significant source of credit risk in securities settlement is the principal risk associated with the settlement date. The idea behind the RVP/DVP system is that part of that risk can be removed if the settlement procedure ensures that delivery occurs only if payment occurs (in other words, that securities are not delivered prior to the exchange of payment for the securities). The system helps ensure that payments accompany deliveries, thereby reducing principal risk, reducing the chance that deliveries or payments would be withheld during periods of stress in the financial markets and reducing liquidity risk.

By law, institutions are required to demand assets of equal value in exchange for the delivery of securities. The delivery of the securities is typically made to the bank of the buying customer, while the payment is made simultaneously by bank wire transfer, check or direct credit to an account.

Following the October 1987 worldwide drop in equity prices, the central banks in the Group of Ten worked to strengthen settlement procedures and eliminate the risk that a security delivery could be made without payment, or that a payment could be made without delivery (known as principal risk). The DVP procedure reduces or eliminates the counterparties' exposure to this principal risk.

RELATED TERMS
  1. Receive Versus Payment - RVP

    A settlement procedure in which an institutional sell order is ...
  2. Current Delivery

    A type of futures contract that requires the delivery of the ...
  3. Delivery Price

    The financial value of the conveyance of the underlying commodities ...
  4. Cash Delivery

    1. The same-day settlement of a currency trade in the forex market. ...
  5. Delivery Point

    In futures contracts, the delivery point is the place where the ...
  6. Physical Delivery

    Term in an options or futures contract which requires the actual ...
Related Articles
  1. ETFs & Mutual Funds

    Explaining Delivery Versus Payment

    Delivery versus payment is a common procedure for settling the exchange of securities.
  2. Investing

    Inside National Payment Systems

    Investopedia explains: The global interconnection of U.S. payment systems makes commerical and financial transfers possible.
  3. Personal Finance

    How Amazon's Restaurant Delivery Service Makes Money (AMZN)

    Amazon's delivery service acts as a loss leader to corner the market now before providing high margin revenue in the future.
  4. Markets

    Boeing Q2 Deliveries Show Weakness Lies Ahead

    Boeing's defense deliveries are down by almost 20% and commercial shipments remain flat, foreshadowing weakness ahead.
  5. Markets

    The Foundation Of Structured Settlements

    This annuitized payment setup should be arranged through impartial attorneys and tax agents.
  6. ETFs & Mutual Funds

    What is a Settlement Date?

    A settlement date is the day a security trade must be settled.
  7. Investing

    What does DDP Mean?

    Delivery duty paid (DDP) is a shipping term specifying that the seller is responsible for all costs associated with delivery of the goods to the buyer. It is usually used when goods are exported ...
  8. Personal Finance

    The 3 Best Shipping Services to Use This Holiday Season (UPS, FDX)

    Look at the strengths, weaknesses and comparative costs of the three best shipping companies: the U.S. Postal Service, UPS and FedEx.
  9. Insights

    Introducing the New Starship Technologies Delivery Robot

    A self-driving delivery robot designed by the co-founders of Skype is revolutionizing the way goods are shipped and delivered by eliminating inefficiency.
  10. Markets

    Explaining Cash On Delivery

    Cash on delivery, also referred to as COD, is a method of shipping goods to buyers who do not have credit terms with the seller.
RELATED FAQS
  1. What's the difference between cash-on-delivery differ and delivery against payment?

    Find out more about cash on delivery and delivery versus payment transactions and the difference between these two types ... Read Answer >>
  2. What does it mean to take delivery of a derivative contract?

    Find out more about derivative contracts and what it means when the holders of derivative contracts take delivery of the ... Read Answer >>
  3. Does identity theft or credit card fraud also occur with cash-on-delivery?

    Understand the process of cash on delivery (COD) as well as where identity theft and fraud may occur and some techniques ... Read Answer >>
  4. How do futures contracts roll over?

    Learn about why futures contracts are often rolled over into forward month contracts prior to expiration, and understand ... Read Answer >>
  5. How will debt settlement affect my credit score?

    Learn how a debt settlement arrangement, though sometimes the best option to eliminate an outstanding debt, can negatively ... Read Answer >>
  6. What do T+1, T+2 and T+3 mean?

    Whenever you buy or sell a stock, bond or mutual fund, there are two important dates of which you should always be aware: ... Read Answer >>
Hot Definitions
  1. Quantitative Trading

    Trading strategies based on quantitative analysis which rely on mathematical computations and number crunching to identify ...
  2. Bond Ladder

    A portfolio of fixed-income securities in which each security has a significantly different maturity date. The purpose of ...
  3. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  4. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  5. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  6. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
Trading Center