Definition§
Delivery versus Payment (DVP) is a settlement method in the securities industry that ensures the transfer of securities only occurs after payment has been received. This process mandates that the buyer’s cash payment must take place either before or at the same time as the delivery of the securities. The DVP concept aims to mitigate the risks associated with securities trading, such as the possibility of receiving securities without payment or making payment without actually receiving the securities.
| DVP | RVP (Receive versus Payment) |
|---|---|
| Payment must occur before or simultaneously with the delivery of securities. | Settlement process from the seller’s perspective, where securities are delivered in exchange for payment. |
| Reduces risk for the buyer by ensuring payment is received first. | Reduces risk for the seller by ensuring delivery occurs upon receipt of payment. |
| Typically used in securities transactions. | Commonly applied in both securities and other financial transactions. |
| Focuses on the buyer’s perspective. | Centers around the seller’s viewpoint. |
Examples§
- Imagine you bought stocks but didn’t have to pay for them until after receiving them – that would be risky! DVP makes sure you pay first, or at least at the same time, before getting those shiny stocks! 💷📈
Related Terms§
- Receive versus Payment (RVP): The settlement process from the seller’s perspective, ensuring the delivery of securities occurs when payment is received.
- Cash on Delivery (COD): A transaction where payment is made at the time of delivery of the goods.
- Settlement Date: The date on which a securities transaction is finalized between buyer and seller.
Illustration§
Humorous Insights§
“Money talks, but delivery only whispers when it comes to securities!” 🤣
Did you know? The DVP system gained prominence after the chaos of the 1987 market crash, which taught everyone the importance of synchronizing cash and securities movement. Talk about learning from mistakes! 📉📚
Frequently Asked Questions§
Q: Why is DVP important?
A: It reduces the risk that either party leaves without their rightful payment or assets, like having someone hold your dessert until you’ve paid for it!
Q: Can DVP be used in all markets?
A: While prevalent in securities markets, availability can vary. Always check if your lunch money is safe at school! 🍔💵
Q: How does DVP affect trading costs?
A: It can increase costs due to additional operational requirements, like making sure your sandwich maker only hands it over when you’ve paid! 🍞🏦
Further Reading§
- Investopedia on DVP
- Securities Operations: A Guide to Trade and Transaction Management by Chris O’Connell for in-depth understanding.
Take the Plunge: Delivery Versus Payment Quiz§
Thank you for diving into the wonderful world of Delivery Versus Payment! Remember, a safe transaction is a happy transaction. Always pay before you play! 🌟💵
