Listen to a Business English Dialogue About Delivery versus payment
Kenneth: Hi Natalie, have you ever heard of “delivery versus payment” in business and finance?
Natalie: Yes, I have. Delivery versus payment (DVP) is a securities settlement method where the delivery of securities is only made once payment is received.
Kenneth: That’s correct. It helps mitigate counterparty risk by ensuring that securities are only transferred if payment is successfully completed.
Natalie: How does delivery versus payment work in practice?
Kenneth: In a DVP transaction, both the buyer and seller must agree to the terms of the trade, and a third-party intermediary, such as a clearinghouse or custodian, facilitates the exchange of securities and funds simultaneously.
Natalie: What are the benefits of using delivery versus payment?
Kenneth: The primary benefit of DVP is that it reduces the risk of settlement failure and ensures that both parties fulfill their obligations simultaneously, leading to greater efficiency and security in the securities trading process.
Natalie: Can you give an example of when delivery versus payment might be used?
Kenneth: DVP is commonly used in large institutional transactions, such as buying or selling government bonds or corporate securities, where timely and secure settlement is crucial.
Natalie: How does delivery versus payment differ from other settlement methods?
Kenneth: Unlike “free of payment” settlement, where securities are delivered without a corresponding payment, DVP requires both the delivery of securities and the receipt of payment to occur simultaneously.
Natalie: What measures are in place to ensure the successful completion of a DVP transaction?
Kenneth: Various risk management and control mechanisms, such as real-time monitoring and reconciliation processes, are employed to ensure the smooth execution of DVP transactions and minimize the risk of errors or disputes.
Natalie: Thanks for explaining, Kenneth. Delivery versus payment seems like an important concept for ensuring the integrity of securities transactions.
Kenneth: You’re welcome, Natalie. It’s a key element of securities settlement infrastructure, promoting trust and efficiency in the financial markets.