Book-entry Automated Payment
The payment for most book-entry trades is also accomplished automatically and quickly by moving money from one member participant’s account to another’s.
Delivery vs. payment (DVP), or cash on demand, simply means that delivery and payment must occur simultaneously. Receive vs. payment (RVP) is its counterpart. DVP means that a buyer does not have to pay for its purchased securities until it receives them. RVP means that a seller may require payment in cash before it delivers them.
Besides trading between dealers, the DVP/RVP system is generally applied to institutional customers. Trading by institutional investors usually involves large sums of money, large numbers of transactions, and a significant number of involved parties. This makes their transactions more complex than retail trades. In addition, institutional traders are well equipped to handle unexpected cash shortfalls. To reduce payment risk, they are required to maintain a clearing fund and post collateral.
Here’s how it works. Deliveries are made by the depository agency provisionally through