Securities Industry Essentials (SIE) ExamUnderstanding Trading, Customer Accounts, and Prohibited ActivitiesMedium
Which of the following describes a 'delivery versus payment' (DVP) account?
- AAn account used exclusively for options trading, requiring immediate settlement.
- BAn account where securities are delivered before payment is received.
- CAn account where the broker-dealer delivers securities to a bank, and the bank makes payment to the broker-dealer.
- DAn account where payment is made before securities are delivered.
Show answer & explanationAnswer & explanation
Correct answer: C. An account where the broker-dealer delivers securities to a bank, and the bank makes payment to the broker-dealer.
A Delivery Versus Payment (DVP) account, also known as a 'cash on delivery' (COD) account, is one where the broker-dealer delivers securities to a bank or other agent of the customer, and the bank makes payment for the securities. This ensures that payment is received upon delivery of the securities.
Why the other options are wrong
- A. DVP is a settlement instruction, not specific to options and does not imply immediate settlement (T+2 for most securities).
- B. This describes a 'receive versus payment' (RVP) or a less secure transaction, not DVP.
- D. This describes a 'receive versus payment' (RVP) or a common cash transaction where funds are sent first.
Delivery Versus Payment (DVP)
A type of settlement instruction where securities are delivered to the client's agent (e.g., a bank) against payment. This ensures that the client's agent receives the securities at the same time the payment is made.
- Also known as Cash on Delivery (COD).
- Protects both buyer and seller.
- Payment and delivery occur simultaneously through intermediaries.
- Common for institutional accounts.
Memory trick: DVP: 'D'eliver 'V'ersus 'P'ayment – they meet at the bank.