DVP
Delivery versus Payment
A settlement mechanism ensuring securities are delivered only when payment is received, and vice versa.
DVP eliminates principal risk by ensuring simultaneous exchange of securities and cash, preventing situations where one party delivers while the other fails to pay. Central securities depositories typically provide DVP settlement through coordinated book-entry transfers. DVP can be implemented through various models including gross settlement (trade-by-trade) or net settlement (multiple trades simultaneously). The mechanism requires participants to pre-fund cash or securities positions or arrange intraday credit facilities. DVP is fundamental to modern securities markets and required by international standards for systemically important payment systems. Failures in DVP settlement trigger automatic protocols for resolution including penalties, forced buy-ins, or position closeouts to maintain market integrity.
Example
Stock purchase settles only when both shares transfer and cash payment completes simultaneously