Delivery Versus Payment (DVP)

Delivery Versus Payment (DVP) is a financial term that refers to the simultaneous exchange of a financial instrument and its payment. In other words, the buyer of a security must pay for it before the seller delivers it. This is in contrast to other settlement methods, such as free delivery, where the seller delivers the security before the buyer pays for it.

DVP is important because it helps to reduce the risk of fraud and settlement failure. When a security is delivered before payment is received, there is a risk that the seller will not receive payment for the security. This can happen if the buyer defaults on the payment or if the security is lost or stolen. DVP eliminates this risk by requiring that the buyer pay for the security before it is delivered.

There are two main types of DVP:

• Physical settlement: In physical settlement, the security is physically delivered to the buyer before payment is received. This is the most common type of DVP.
• Book-entry settlement: In book-entry settlement, the security is not physically delivered. Instead, the buyer's and seller's records are updated to reflect the transfer of ownership. Book-entry settlement is becoming increasingly popular, as it is more efficient and less costly than physical settlement.

DVP is a critical part of the financial system. It helps to ensure that securities transactions are completed safely and securely.