Delivery Versus Payment: A Breakdown
In October of 1987, there was a near global collapse of equity prices. That dramatic moment had lasting and drastic effects on many institutions, both financial and otherwise. It left central banks searching for a solution to prevent this type of bottoming out to ever occur again. Banks realized that disturbances in settlements of security transactions had potential to radiate through the entire financial market via payment systems.
From this awareness, a large body of financial institutions came together. Their goal was to establish a more reliable method of insuring investments and reducing credit risk. This standard is commonly called Delivery Versus Payment, or DVP for short. It has had a great positive effect on the security of financial transactions over the years.
What is Delivery Versus Payment?
In essence, the principal of Delivery Versus Payment states that delivery of a service, information, or system will only occur if payment occurs. The system serves as a type of bridge between the payment transaction, software systems, and a security transfer system. DVP is an incredibly common component of a variety of businesses. This includes the routine security measures used by all transactions at Easy Stock Loans.
Within this securities industry settlement procedure, the basic concept is that the buyer’s payment is due at the time of delivery. If payment has not been scheduled or processed, the DVP prohibits the transfer of funds. Delivery Versus Payment is only called this from the perspective of the buyer. From the seller’s point of view, this system is called Receive Versus Payment, or RVP for short.
Proven time and time again by practical application, DVP is a highly-effective and trustworthy method of financial and information security. Easy Stock Loans is proud to utilize this tried and true breakthrough in technology for all of our loans.
How it Works
Typically, DVP is in reference to large accounts, such as those of large banks or mutual funds. Here’s a basic rundown on how the process works.
- On settlement day, a broker will deliver the relevant purchased securities to the bank or financial institution of the buyer.
- From there, the purchasing customer’s bank makes a payment to the broker at the same time. This payment often takes the form of a money order, check, or wire transfer.
- Delivery of securities and goods will only arrive if the payment has been received.
This may seem to only work in the favor of the financial institution. However, this practice also protects the buyer from the risk of the opposing entity defaulting. DVP also acts to limit the chance of an error in payment or delivery when there is an issue in the financial market system. Everything flows more easily and more safely with this innovative principal in place.
Easy Stock Loans and DVP
Our team at Easy Stock Loans is proud to utilize the DVP standard of handling all our loans. With this technology, we have brought a greater sense of security to our clientele. If you have any questions about the way we utilize DVP or the other services we offer, please contact a loan adviser today.