Quick Answer
DVP links delivery to payment on the delivering or selling side, and RVP describes the receiving or buying side. A customer DVP/RVP transaction in a depository-eligible security must settle by book entry through a securities depository, subject to exceptions. The delivery and payment instructions are conditional on each other.
A customer's agent makes or receives delivery at settlement. DVP coordinates that exchange with the related payment.
How Does DVP Prevent One-Sided Settlement?
The delivery and payment instructions are conditional on each other:
- The buying customer's agent receives the securities.
- The selling customer's agent receives payment.
- Each transfer occurs in exchange for the other transfer.
The seller does not release securities without receiving payment. The buyer does not release payment without receiving securities. This linkage prevents either side from taking the other's credit risk during the settlement exchange.
DVP and RVP describe the same linked exchange from opposite sides. DVP is the delivering or selling side. RVP is the receiving or buying side.
Exam Tip: Gotchas
DVP and RVP identify opposite sides of the same exchange. DVP is the delivering or selling side. RVP is the receiving or buying side.
When Must a Customer Transaction Use Book-Entry Settlement?
For a customer DVP/RVP transaction in a depository-eligible security, a firm must settle by book entry through a securities depository.
| Situation | Book-entry treatment |
|---|---|
| Customer DVP/RVP transaction in a depository-eligible security | The firm must settle by book entry through a securities depository. |
Exam Tip: Gotchas
The book-entry duty depends on both the customer and the security. It applies to customer DVP/RVP transactions in depository-eligible securities, subject to the listed exceptions.
How Does DVP Differ From Customer Asset Protection?
The Custody, Safekeeping, and Customer Asset Protection lesson covers possession and control of the customer property a firm carries. DVP settlement is a separate mechanic.
Exam Tip: Gotchas
DVP and customer protection address different risks. DVP prevents one-sided settlement. Possession, control, and reserve requirements protect customer property that the broker-dealer carries.
How Is DVP Different From Related Processes?
| Process | Question it answers |
|---|---|
| Trade comparison | Do the buyer and seller agree on the trade details? |
| DVP/RVP settlement | Will securities and payment exchange together, with DVP describing the delivering or selling side and RVP the receiving or buying side? |
| Reclamation | Does a party have a claim to return, or demand the return of, a security that it previously accepted? |
| Rejection | Does a party have a valid reason to refuse a security presented for delivery? |
Exam Tip: Gotchas
Reclamation follows acceptance, while rejection occurs at presentation. Neither process describes the normal DVP exchange.
What Should You Check on Exam Day?
- Link securities delivery to payment, so neither side takes the other's credit risk during the settlement exchange.
- Treat DVP as the delivering or selling side and RVP as the receiving or buying side.
- Require book-entry settlement through a securities depository for customer DVP/RVP transactions in depository-eligible securities.
- Separate DVP settlement from earlier trade comparison, reclamation after acceptance, and rejection at presentation.