Delivery Versus Payment (DvP)

Delivery Versus Payment (DvP) is a securities settlement mechanism that links the transfer of a security to the transfer of the cash paying for it, so that one leg cannot complete unless the other completes at the same time. It exists to remove principal risk from securities trading: without DvP, a buyer or seller that moves first — handing over cash before receiving securities, or securities before receiving cash — risks losing the full value of the trade if the counterparty fails in between.

DvP is used across securities markets by central securities depositories, custodian banks and clearing houses, and it is the securities-market equivalent of Payment versus Payment (PvP), which performs the same linking function for the two currency legs of a foreign exchange trade. DvP is not the same as Free of Payment (FOP) settlement, where a security moves on its own without a linked cash payment — a method still used for transfers that are not part of a cash sale, such as moving securities between a client's own accounts.

Think of buying a house at a closing table, where the deed and the money change hands at the same appointment, with a lawyer or title company making sure neither side walks away with only their own piece. The buyer does not hand over a check and then hope the seller shows up with the deed next week, and the seller does not sign over the house and then hope the check clears later — both sides happen together, in the same transaction, or neither happens at all.

DvP gives securities trading that same simultaneous handoff. The system holding the securities and the system moving the cash are wired together so that a trade only settles once both the security and the money are confirmed ready to move, at the same moment, removing the gap where one side could be left exposed.

Before DvP became standard, securities and cash often settled through separate processes, sometimes days apart, which left both buyers and sellers exposed to the other side's failure in the interim. High-profile losses in the 1980s and 1990s, combined with the growing scale of global securities trading, pushed regulators and market infrastructure operators to adopt linked settlement as a baseline standard rather than an optional safeguard.

A central securities depository or settlement system holds both the securities account and, directly or through a linked cash settlement system, the payment leg of a trade. When a trade is due to settle, the system checks that the seller has the securities and the buyer has the cash available, and only then does it move both simultaneously — crediting securities to the buyer and cash to the seller in the same irrevocable action. If either leg cannot be completed, neither leg settles, so no party is ever left holding only half of the exchange.

• Model 1 settles each securities and cash transfer individually, trade by trade, on a gross basis throughout the day.
• Model 2 settles securities transfers gross throughout the day but settles the corresponding cash payments on a net basis at a fixed time.
• Model 3 settles both securities and cash on a net basis, calculating final positions for both legs together at the end of the cycle.

DvP is the standard settlement method for exchange-traded government bonds, equities and most other listed securities, operated through national central securities depositories and increasingly linked across borders through international arrangements. Book-to-book settlement within a single custodian can also apply DvP principles internally, moving securities and cash between client accounts simultaneously rather than relying on an external settlement system.

DvP removes principal risk but does not remove replacement cost risk, since a failed trade that never settles still leaves the surviving party needing to replace it at current market prices. Cross-border DvP also remains harder to achieve than domestic DvP, because it requires linking securities and cash systems that sit in different countries, under different legal regimes and sometimes different time zones, which is part of why Free of Payment transfers persist for some cross-border and intra-custodian movements.

Building true DvP across borders generally requires either a direct technical link between two national settlement systems or an intermediary, such as a global custodian, holding accounts in both markets simultaneously. Where neither exists, market participants sometimes fall back on less protected arrangements, trading the certainty of linked settlement for the ability to access a market that has not yet built that infrastructure.