Quick Answer
DVP and RVP describe the same simultaneous exchange of securities and cash from opposite sides: DVP is the buyer's view (pay only when securities arrive) and RVP is the seller's view (deliver only when payment arrives). Institutional investors use this method through a separate custodian bank, which eliminates settlement risk for both parties.
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 the COD orders rule (NSCC settlement framework)
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:
- Institutional customer places order with broker-dealer
- Broker-dealer executes the trade
- Broker-dealer sends confirmation to the customer's custodian bank
- On settlement date, custodian bank and broker-dealer exchange securities and payment simultaneously
| Feature | DVP/RVP | Regular Settlement |
|---|---|---|
| Primary users | Institutional investors | Retail and institutional |
| Custodian involved | Yes (separate custodian bank) | No (broker-dealer holds assets) |
| Settlement risk | Eliminated (simultaneous exchange) | Minimal (backed by National Securities Clearing Corporation (NSCC) guarantee) |
| Governing rule | COD orders rule | SEC T+1 settlement rule |
Exam Tip: Gotchas
- DVP/RVP is for institutional accounts with separate custodian banks, not retail accounts.
Handling the Order
For an eligible transaction settling in the United States through the customer's agent, the firm must obtain the agent's and account's details before or at order acceptance, mark the order POD (Payment on Delivery) or COD, and send the confirmation information to the agent by the end of the trade date.
Depository-eligible transactions use book-entry settlement. Electronic confirmation and affirmation are processed through the prescribed clearing-agency or qualified-vendor facilities.
What Should You Check on Exam Day?
- DVP and RVP are the same transaction seen from two sides: DVP is the buyer paying against delivery, RVP is the seller delivering against payment.
- Remember DVP is also called Cash on Delivery (COD), and the method is limited to institutional accounts with a separate custodian bank.
- Contrast DVP/RVP's simultaneous exchange (settlement risk eliminated) with regular settlement, which relies on the NSCC guarantee instead.