DvP settlement: delivery versus payment

Without DvP, a seller can deliver securities and never receive the money, and a buyer can pay and never receive the securities. The full value of the trade is at risk, which is called principal risk. After the market crash of October 1987, the Group of Thirty recommended DvP for all securities transactions, as the Wikipedia article on delivery versus payment recounts. The central banks of the G10 followed in September 1992 with the report Delivery versus payment in securities settlement systems.

The report describes three models. In model 1, securities and cash settle trade by trade, both gross. In model 2, securities settle gross during the day and cash settles net at the end of a cycle. In model 3, both legs settle net at the end of the cycle. For the payments side the models differ in how much cash a participant must hold during the day: gross settlement of the cash leg needs more liquidity, net settlement needs less and leaves an open position until the cycle closes.

In daily operations both sides send a settlement instruction to their custodian or central securities depository. The seller's instruction is a delivery versus payment, the buyer's a receive versus payment (RVP). The depository matches the two and settles them together. An instruction free of payment (FOP) moves securities without a linked cash leg, which Wikipedia lists for cases such as gifts and inheritances. Between two trading parties, FOP leaves the risk that DvP removes.

Most securities in the euro area settle on TARGET2-Securities (T2S), the settlement platform of the Eurosystem. The ECB describes T2S as a platform where securities and cash are exchanged at the same time. 24 central securities depositories from 23 European countries are connected, settlement runs in euro and Danish krone, and around 800,000 securities transactions settle on an average day.

The cash leg settles in central bank money: each participant holds a dedicated cash account with a central bank connected to T2S, in Germany the Deutsche Bundesbank. A cash leg in central bank money carries no credit risk on the money itself, so new DvP designs for tokenized securities are compared with this setup.

When a security exists as a token, the cash leg needs a counterpart that can move under the same conditions. A trade can settle against an e-money token on the same ledger, as 21X does. It can settle against tokenized commercial bank money, the tokenized deposits of a bank. Or it can settle in central bank money through a link to TARGET.

The last option opened when the Eurosystem launched Pontes on September 21, 2026. Pontes connects market DLT platforms with the TARGET Services. Participants settle the cash leg either with cash tokens on the Eurosystem's DLT platform or in T2, and the ECB states that DvP and other all-or-none transactions run through its Hash-Link protocol. The wholesale CBDC page covers the trials that led to Pontes.

On a single ledger, a smart contract can hold both legs in escrow. Bitbond describes its DvP contract as an escrow that releases neither side until both sides have deposited, and calls the result an atomic swap. The page on atomic settlement explains what this all-or-nothing step costs in liquidity.

The cash leg of tokenized securities was the subject of the second panel at the Frankfurt Forum on Digital Assets & Applications: payments in DLT-based markets and the use of different forms of money, with speakers from the Deutsche Bundesbank, Deutsche Bank, Commerzbank, DZ Bank and AllUnity. Finance Loop has a strategic cooperation with 21X, whose venue settles tokenized securities against e-money tokens, and was a partner of the Digital Euro Conference 2026.

Delivery versus payment is a settlement method in which a security is transferred only together with the payment for it. It removes the risk that one side delivers and the other does not.

They are the two sides of the same trade. The seller instructs delivery versus payment, the buyer instructs receive versus payment, and the depository settles both once the instructions match.

Model 1 settles securities and cash gross, trade by trade. Model 2 settles securities gross and cash net at the end of a cycle. Model 3 settles both legs net. The models come from the 1992 report of the G10 central banks.

Yes. Since the Eurosystem launched Pontes on September 21, 2026, a DLT platform connected to the TARGET Services can settle the cash leg of a DvP trade in central bank money.