What it means
In a securities trade, one side delivers the shares or bonds and the other side pays money. Receive versus payment is the instruction used by the party receiving securities, telling the custodian to accept the delivery only if the payment is made at the same moment.
Its mirror image, delivery versus payment, is used by the party delivering the securities. The purpose is to cut settlement risk, which is the danger that one side hands over its half of the deal and the other side fails to do so.
If you pay first and the securities never arrive, you have lost cash, and if you deliver first and the money never comes, you have lost the securities. Simultaneous exchange removes that gap.
Operations teams use RVP instructions every day when institutions such as pension funds and asset managers trade through their custodian banks. The instruction names the securities, the quantity, the price and the account, and the custodian checks that everything matches before it releases cash.
Mismatches are a common cause of failed trades, so accuracy matters. In sales, RVP means regional vice president.
At a mutual fund company or an investment platform, an RVP is often an external wholesaler who covers a territory, builds relationships with advisers and promotes the firm's funds. The title also appears in other industries, so it is worth checking the context.
Good practice is to spell out the term on first use in any document that will be read by a mixed audience. The same three letters can mean a settlement instruction in one email and a senior sales manager in the next.
A related idea is free of payment delivery, where securities move without cash changing hands at the same time. That arrangement carries more risk and is used for internal transfers or special cases, which is why many institutions insist on the linked versions for ordinary trades.
In practice
Real-world examples.
Example
An asset manager buys 5,000 shares for a client and sends its custodian an RVP instruction. The custodian pays the seller's broker only at the moment the shares are delivered to the client's account.
Example
A treasury team at a company buys $1,000,000 of government bonds using RVP settlement. Because payment and delivery are linked, the team avoids the risk of paying for bonds that do not arrive.
Example
A mutual fund firm hires a regional vice president to cover the north-east territory. Her job is to visit financial advisers, explain the firm's products and help them build client portfolios.
Formula
Calculation
Settlement payment = Number of units x Price per unit (plus accrued interest for bonds, plus or minus any fees).
Suppose a pension fund buys 1,000 shares at $50 each through an RVP instruction. The payment due is 1,000 x $50 = $50,000. The custodian releases the $50,000 only when the 1,000 shares arrive in the fund's account, so neither side is exposed to the other's failure. For bonds the amount due also includes accrued interest, which is the interest earned since the last coupon date. A $1,000,000 bond purchase with $4,000 of accrued interest and a clean price of $990,000 would therefore settle at $994,000.Case study
Seen in the real world.
Lakeshore Asset Management is an entirely fictional manager looking after $800,000,000 for pension clients. In this illustrative story, a trade fails because the operations clerk entered the wrong settlement account on an RVP instruction.
The custodian could not match the instruction to the seller's delivery and the trade failed to settle on the due date. The firm had to pay interest on the delay and spent two days chasing the mismatch.
The operations head introduced a second-person check on every instruction, and failed trades fell sharply in the next quarter. The illustrative lesson is that RVP protects against counterparty failure but depends on accurate paperwork. He also asked the custodian to send a daily list of unmatched instructions so that the team could fix problems the same morning.
Watch out
Common mistakes.
- Assuming RVP always means regional vice president, when in operations it means receive versus payment.
- Entering instructions with mismatched details, which causes the trade to fail to settle.
- Believing RVP removes all risk, when it only removes the risk of one side paying without receiving.
Questions
People also ask.
What is the difference between RVP and DVP?
RVP is the instruction from the party receiving the securities, and DVP is the instruction from the party delivering them.
Why does simultaneous settlement matter?
It removes the gap in which one side could lose cash or securities if the other fails.
Who sends an RVP instruction?
The buyer or the buyer's agent sends it to the custodian bank holding the securities account.
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