Editing Delivery versus payment

{{Short description|Common form of settlement for securities}}
'''Delivery versus payment''' or '''DvP''' is a common form of [[settlement (finance)|settlement]] for [[securities]]. The process involves the simultaneous delivery of all documents necessary to give effect to a transfer of securities in exchange for the receipt of the stipulated payment amount. Alternatively, it may involve transfers of two securities in such a way as to ensure that delivery of one security occurs if and only if the corresponding delivery of the other security occurs.<ref>{{cite web |url=http://www.bis.org/publ/cpss101a.pdf |title=Principles for Financial Market Infrastructures (2012) |publisher=[[International Organization of Securities Commissions]] |date=April 2012}}</ref>

This is done to avoid [[settlement risk]] such as where one party fails to deliver the security when the other party has already delivered the cash when settling a securities trade.

==History==
The [[Black Monday (1987)|market crash of October 1987]] drew global attention to potential weaknesses in the standards applied for clearance and settlement. Numerous studies resulted, among which was one from the [[Group of Thirty]] which pioneered standards for providers of securities settlement services. The report included nine recommendations, one of which was that "Delivery versus payment (DvP) should be the method for settling all securities transactions with systems in place by 1992."

In December 1990, the [[Committee on Payment and Settlement Systems]] (CPSS), consisting of representatives from the major central banks, initiated further study of DVP. Its report in September 1992  found three ways of achieving DvP:
# Transfer of securities and funds done on a trade-by-trade basis, with final transfer of securities occurring at the same time as the final transfer of funds;
# Transfer of securities on a gross basis, with final transfer of securities occurring throughout the day, but funds transfer on a net basis at the end of the day;
# Transfer of both securities and funds on a net basis, with final transfers occurring at the end of the day.<ref>{{Citation
 | first = Peter | last = Norman
 | title = Plumbers and Visionaries
 | place = Chichester
 | publisher = John Wiley & Sons
 | pages = 87–90
 | date = February 2008
 | isbn = 978-0-470-72425-5}}</ref>

==Operational perspective==
From an operational perspective DVP is a sale transaction of negotiable securities (in exchange for cash payment) that can be instructed to a settlement agent using [[SWIFT message types|SWIFT Message Type]] MT 543 (in the ISO15022 standard). Use of such standard message types is intended to reduce risk in the [[settlement (finance)|settlement]] of a financial transaction, and enable automatic processing. Ideally, title to an asset and payment are exchanged simultaneously. This may be possible in many cases such as in a [[Central securities depository|central depository system]] such as the United States [[Depository Trust Corporation]].

==Non-DvP==
{{main | Non-DVP}}
Non-DvP settlement processes typically expose the parties to [[settlement risk]]. They are known by a variety of names, including ''free delivery'', ''free of payment'' or ''FOP''<ref>{{Cite web|url=https://www.euronextvps.no/|title=Euronext VPS|website=www.euronextvps.no}}</ref> delivery, or in the United States, ''delivery versus free''.<ref>https://www.fanniemae.com/content/fact_sheet/dvp-dvf-comparison.pdf {{Webarchive|url=https://web.archive.org/web/20170418164451/https://www.fanniemae.com/content/fact_sheet/dvp-dvf-comparison.pdf |date=2017-04-18 }} {{Bare URL PDF|date=March 2022}}</ref> FOP settlement involves delivery of the securities without a simultaneous transfer of funds – hence 'free of payment'. Funds may either be remitted by other, mutually agreed means, or payment may not be made at all. This is the case in the transfer of securities gifted or inherited, or, in a country retaining paper securities certificates, in the [[Dematerialization (securities)|dematerialisation of such securities]], by transfer FOP into the name of the electronic custodian, with beneficial ownership retained by the transferor.

== See also ==
*[[Herstatt Bank]]
*[[ISO 15022]]
*[[Settlement date]]
*[[Securities market participants (United States)]]
*[[T+2]]

==References==
{{reflist}}

== External links ==
* [http://www.iso15022.org/message.asp?src=msg&id=2 ISO 15022 - Business Elements: Delivery versus payment]

{{DEFAULTSORT:Delivery Versus Payment}}
[[Category:Securities clearing and depository institutions]]
[[Category:Central securities depositories]]
[[Category:Banking technology]]
[[Category:Society for Worldwide Interbank Financial Telecommunication]]
[[Category:Settlement (finance)]]