Finance: What is Delivery Vs. Payment?

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

00:28

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]