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QuestionWhat is DVP?
DVP (delivery-versus-payment) is a link between a securities transfer system and a funds transfer system that ensures that delivery occurs if, and only if, payment occurs. It is a method and mechanism that prevents the risk of payment for a transaction not being conducted even though the Japanese government securities (JGSs) are delivered, and vice versa.
In the recommendations regarding securities clearance and settlement formulated in 1989 by the Group of Thirty (G-30) -- an international body composed of experts from private and central banks, which offers opinions regarding international economic and financial issues -- it was advised that DVP should be employed as the method for settling all securities transactions.
In Japan, the Bank introduced in April 1994 DVP settlement of JGS transactions, which links the Bank of Japan Financial Network System (BOJ-NET) Funds Transfer System and the BOJ-NET Japanese government bond (JGB) Services. Thereafter, DVP settlement also became possible for other bonds such as corporate bonds, municipal bonds, and government-guaranteed bonds, as well as CP, stocks, and investment trusts by linking the BOJ-NET Funds Transfer System with securities settlement systems operated by the private sector.
In 2001, when JGS settlement on a real-time gross settlement (RTGS) basis was realized, a function for simultaneous processing of DVP and collateralization (SPDC) was introduced in order to facilitate smooth JGS settlement on a DVP basis. The SPDC function enables financial institutions that purchase JGSs to receive intraday overdrafts from the Bank by using the JGSs that the institutions receive from the seller as collateral, and then use the funds to pay for such JGSs. This function is now widely used as it is an effective way to reduce the volume of liquidity necessary for settlement.
For an outline of the SPDC function, see The Framework for Restructuring BOJ-NET JGB Services.
To obtain figures for the volume and value of DVP for JGB settlement as well as of JGB settlement using SPDC, see Payment and Settlement Statistics released by the Bank on a monthly basis.