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Finance: What is Delivery Vs. Payment? 63 Views
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Description:
What is Delivery Vs. Payment? In order to mitigate liquidity and settlement risk when trading securities on an institutional level, the Delivery Vs. Payment (DVP) system was created. This ensures that securities are only delivered against payment, in order to protect the Seller, while the Buyer is protected by not having funds moved unless for payment of authorized securities purchases .
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Transcript
- 00:00
Finance a la shmoop what is delivery versus payment? alright this is delivery [Man delivering package to man and woman]
- 00:09
and this is payment and this is what happens when the whole thing fails to go
- 00:16
off without a hitch yeah and yeah some poor dock worker
- 00:20
who's gonna have to clean all that up well when it comes to selling stock
- 00:24
there's typically less bloodshed but it's no less important to make sure that [Stock delivery appears at door]
Full Transcript
- 00:28
delivery of the goods in this case maybe it's a hundred shares of get-rich-quick
- 00:32
com happen simultaneously with payment for those goods or at least so that the
- 00:38
payment is trackable with the delivery well delivery versus payment or DVP for
- 00:43
anyone who's in a hurry is from the perspective of the buyer if you're
- 00:47
looking at things from the seller's point of view it's RVP receive versus
- 00:52
payment because you're receiving the dough or the payment got it [Seller and Buyer appear]
- 00:56
but yeah DVP is basically a settlement system it's a way of ensuring that any
- 01:01
transaction involving the sale of a security goes smoothly so that no one
- 01:06
needs to have rocks tied to their ankles no cash no stash and no splash so why do [Person moving with rock attached to ankle]
- 01:11
we have delivery versus payment like why is this even a thing well you could
- 01:16
imagine in the past that people were paying for things that didn't exist like
- 01:20
they thought they were buying 100 shares of whatever.com they paid the broker and
- 01:24
while the shares disappear the broker disappeared everyone disappeared and oh
- 01:28
well money's gone so what happens today is there was typically a lag in what's
- 01:33
basically a mini escrow account where the money sits for a few days t plus 3 [Money appears in a vault and clock ticks]
- 01:37
it used to be t plus 5 being sure that the seller actually had legal title to
- 01:42
the shares that they were selling to you and that your money was in fact good and
- 01:46
not Somalian warlord laundered money or at least easily identifiable Somalian
- 01:50
warlord laundered money that's why there's a lag and that's why delivery
- 01:53
versus payment has kind of two separate steps got it get it good! stay out of the water... [Man kicks other man into water]
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