Delivery versus PaymentDvP
Delivery versus payment is a settlement method where securities are delivered only if payment is made at the same time, so neither side can be left with nothing. Payment versus payment (PvP) applies the same principle to the two legs of a currency trade.
If you hand over shares and the buyer never pays, you've lost both. Delivery versus payment is the plumbing that prevents that, by linking the two transfers so one cannot happen without the other.
- Category
- Accounting, Tax and Operations
- Reading time
- 3 min
- Also called
- DvP, DVP settlement, Payment versus payment
- Updated
DvP in plain words
DvP ties the transfer of securities to the transfer of cash, so the securities move only if the payment does.1
PvP does the same for currencies: one currency leg is paid only if the other is.2
CLS, for example, settles FX payments simultaneously using a PvP system.3
How DvP settlement works, step by step
Trade is agreed
Buyer and seller agree price and quantity.
Clearing
Obligations are confirmed and possibly netted before settlement.4
Securities are blocked
The seller's securities are earmarked in the settlement system.
Cash is blocked
The buyer's funds are earmarked.
Linked transfer
Delivery occurs if – and only if – payment occurs.1
For FX, use PvP
Both currency legs settle together.2
Worked examples
Example 1 — Without DvP
−$50,000 principal at riskHypothetically, a seller delivers 1,000 shares worth $50 each first; the buyer then defaults.
| Value delivered | 1,000 × $50 = $50,000 |
| Cash received | $0 |
Linking delivery to payment ensures delivery happens only if payment does, which removes this loss.1
Example 2 — With DvP
No principal lossThe same trade settles through a DvP system and the buyer lacks funds.
| Shares delivered | 0 |
| Cash paid | $0 |
| Principal lost | $0 |
Because delivery occurs only if payment occurs, the failed trade leaves both sides where they started.1
Example 3 — FX with PvP
Settlement risk removedHypothetically a bank sells €1,000,000 for dollars at 1.10.
| Dollar leg | €1,000,000 × 1.10 = $1,100,000 |
| Settlement | Both legs together via PvP |
Paying both currencies at the same moment (PvP) removes settlement risk — the biggest risk in currency trading.3
DvP vs free delivery
| Aspect | DvP | Free delivery |
|---|---|---|
| Link between legs | Linked | Independent |
| Principal risk | Removed | Full amount at risk |
| Typical use | Securities settlement systems | Gifts, transfers, some OTC deals |
| Currency version | PvP | Unlinked FX payments |
Where DvP and PvP are used
Stock settlement
Exchange trades settle DvP after clearing.
Bonds
Government and corporate bond trades settle DvP.
FX
Banks use PvP for currency trades.
Collateral
Repo and margin transfers often use DvP.
Advantages and disadvantages
Advantages
- Removes principal risk in settlement.
- Supports market stability.
- Makes failed trades easier to unwind.
- PvP extends the idea to currencies.
Disadvantages
- Requires linked cash and securities systems.
- Funding must be ready at settlement time.
- Not every market or asset uses it.
- Replacement-cost risk on failed trades remains.
Going deeper
Read as far as you need. Each level builds on the one before it.
If and only if
Beginner
DvP ensures delivery occurs if – and only if – payment occurs.1
PvP for currencies
Intermediate
PvP applies the same rule to two currency payments, as in CLS's simultaneous settlement.3
Central bank view
Advanced
The BIS/CPMI developed a framework for the risks in securities settlement, including DVP, and assessed approaches to DVP against containing systemic risk.5
Common mistakes
Thinking DvP removes all risk
Replacement-cost risk remains if the trade must be redone.
Confusing DvP with clearing
Clearing calculates obligations; DvP settles them.
Ignoring FX legs
Currency payments need PvP to get similar protection.
Assuming all transfers are DvP
Account transfers between brokers are often free of payment.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- DvP links delivery and payment.
- Neither side can be left with nothing.
- PvP applies the rule to FX.
- Principal risk disappears; replacement risk does not.
- It underpins safe settlement systems.
Frequently asked questions
Does DvP matter for retail traders?
Is DvP the same everywhere?
What is free of payment?
Further learning
- Settlement
The step DvP protects.
- Counterparty Risk
The risk DvP reduces.
- Default Risk
Why a counterparty may fail.
- Spot Trading
Trades that settle quickly.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
- European Central Bank. Glossary (D) (opens in a new tab) Checked .
- European Central Bank. Glossary (P) (opens in a new tab) Checked .
- CLS Group. CLSSettlement (opens in a new tab) Checked .
- European Central Bank. Glossary (C) (opens in a new tab) Checked .
- Bank for International Settlements (CPMI). Delivery versus payment in securities settlement systems (opens in a new tab) Checked .
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. We are not affiliated with any publisher linked above. Last reviewed . Report an error or request a source credit.