Receive Versus Payment (RVP)
What Is Receive Versus Payment (RVP)?
Receive versus payment is a settlement strategy for investment securities where the payment must be made prior to the delivery of the securities being purchased. All in all, the delivery of the securities and delivery of the payment must happen at the same time.
Receive versus payment settlement is utilized by institutional investors, including financial institutions and mutual funds. Receive versus payment provisions emerged when institutions were disallowed from paying money for securities until they held the securities, and they were in negotiable form.
Receive versus payment is useful since it reduces the risk of a firm delivering the securities and not getting the payment.
Understanding Receive Versus Payment (RVP)
The receive versus payment settlement process assists with guaranteeing that the delivery of securities is possibly finished assuming payment is made. The RVP cycle is according to the seller's point of view, meaning the seller must deliver the securities whenever payment has been made.
The settlement cycle according to the buyer's point of view is called delivery versus payment (DVP) since the buyer must make the payment before or simultaneously as the securities are delivered.
Numerous institutional transactions are done electronically, and a RVP settlement gives an electronic bridge between the wire transfer system and the securities delivery system. Without a RVP settlement, process brokers would be at risk of delivering the securities and not getting compensated by the settlement date.
The goal of the receive versus payment and delivery versus payment system is to reduce the risk of nonpayment and nonreceipt of securities for the two players engaged with the trade. Receive versus payment is additionally called receive against payment (RAP).
Receive Versus Payment (RVP) Process
Commonly, DVP and RVP transactions include large institutional market participants, for example, pension funds. Below is an ordinary interaction for RVP-DVP settlement.
On the settlement date of the transaction, the broker selling the securities delivers the securities to the bank of the purchasing party. The purchasing party starts a wire transfer to be delivered to the seller's account. The securities are not delivered by the buyer's financial institution until the seller has received the money.
Receive versus payment can be appeared differently in relation to delivery versus free (DVF), where no exchange of cash needs to happen simultaneously the securities are delivered. Delivery of payment can happen at a time separate from the delivery of securities with delivery versus free settlement.
Benefits of Receive Versus Payment (RVP)
The RVP cycle assists with safeguarding the seller of securities in times of stress or extreme volatility in the [financial markets](/financial-market, for example, during 9/11 and the 2007-2008 financial crisis. The RVP and DVP settlement system likewise reduces principal risk, which is the point at which a payment is made without the delivery of the securities to the buyer.
RVP and DVP assist with guaranteeing that payments go with deliveries, and the delivery of securities is just made upon a payment, in this way lessening the risk of loss to the two players associated with the trade.
Features
- Receive versus payment is useful since it reduces the risk of a firm delivering the securities and not getting the payment.
- RVP is according to the seller's point of view, while delivery versus payment is according to the buyer's point of view, meaning the buyer must pay before the securities are delivered.
- Receive versus payment is a settlement strategy for investment securities where the payment must be made prior to the delivery of the securities being purchased.
- Receive versus payment settlement is utilized by institutional investors, including financial institutions and mutual funds.
