DVP/RVP Transactions

With an understanding of how securities are held and transferred, there's a specialized settlement method used primarily by institutional investors: Delivery Versus Payment (DVP) and Receive Versus Payment (RVP).

Delivery Versus Payment (DVP)

• Also called Cash on Delivery (COD)
• The buyer's custodian bank delivers payment only when securities are simultaneously delivered
• Eliminates settlement risk; neither party is exposed to the other failing to perform
• Governed by FINRA Rule 11860 (COD Orders)

The key principle: Securities and cash exchange at the same time. Neither side goes first, so neither side is at risk.

Exam Tip: Gotchas

• DVP and COD (Cash on Delivery) are the same thing. The exam uses both terms interchangeably.

Receive Versus Payment (RVP)

• The seller delivers securities only when payment is simultaneously received
• Mirror of DVP from the seller's perspective
• Same transaction, different viewpoint:
  • Buyer's side: DVP (I deliver payment when I receive securities)
  • Seller's side: RVP (I receive payment when I deliver securities)

Exam Tip: Gotchas

• DVP is the buyer's perspective; RVP is the seller's perspective of the same transaction. Different name, same settlement.

Institutional Use

• DVP/RVP is primarily used by institutional investors (pension funds, mutual funds, insurance companies) that use separate custodian banks
• The broker-dealer confirms the trade, and the custodian bank handles the actual money/security exchange
• The institutional customer's assets are held at the custodian bank, not at the broker-dealer

How it works in practice:

1. Institutional customer places order with broker-dealer
2. Broker-dealer executes the trade
3. Broker-dealer sends confirmation to the customer's custodian bank
4. On settlement date, custodian bank and broker-dealer exchange securities and payment simultaneously

Exam Tip: Gotchas

• DVP/RVP is for institutional accounts with separate custodian banks, not retail accounts.