Delivery Vs. Payment

Delivery versus payment (DVP) is a settlement mechanism where the delivery of securities from a seller is made only upon receipt of the payment from the buyer. This is a globally accepted mechanism adopted by Stock Exchanges worldwide where it minimizes principal risk, that is, the risk that the seller of a security would deliver the security but not receive payment or that the buyer of a security would make payment but not receive delivery of the security.

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DVP Explained

CURRENT CLEARING & SETTLEMENT MODEL

  • Securities are transferred on T Day
  • ATS & CDS tightly coupled
  • Pre-trade sell check takes place
  • Funds are transferred on T + 3 Day

DVP CLEARING & SETTLEMENT MODEL

  • No Security transfers on T Day
  • ATS & CDS De- coupled
  • Update Trade Details in ATS
  • Securities gross settlement & funds net settlement
  • Securities are transferred after funds received.

An investor shall place a Buy or a Sell order through their broker’s Order Management System (OMS). Broker’s OMS will ensure the validity of the order, specifically for Sell orders for the availability of sufficient securities in the account to place the order. Once both Buy order and the sell order is matched a trade will be executed.

Benefits of Implementing DVP at CSE

Implementing DVP would ensure the transfer of securities on the same date of payment following the confirmation from the settlement bank. This would mitigate the risk associated for the seller of the securities. The current clearing and settlement model have the asset commitment risk for seller and settlement risk from the buyer.

Minimize Asset Commitment Risk

Seller’s exposure from Buyer minimized.

Globally accepted mechanism

More funds will be channeled into the Market.

Strengthen the overall credibility and integrity of the market

Intraday Trading

There is no impact to the day trading mechanism. If you make a purchase today, even though, the purchased quantity will come to your CDS account on the settlement day(T+3) the system will record it as a pending buy position in your CDS account and the you may sell the same quantity or less on the same day. Hence, you will be able to continue buying and selling on the same day with the day trading fee benefit as done presently.

Corporate Actions

There will be no effect to the corporate action entitlement. Any investor who hold or purchase shares the day before the XD date will be eligible for the particular corporate action as per the current practice.

Short Selling

Short selling will not be permitted for clients of Stock broker Firms.In the event of a shortfall in securities, the CSE will introduce a rectification mechanism by way of a Buy-In board where the short position can be covered through a buy in. The settlement cycle for the Buy in Board will be T + 1

Settlement Day

The settlement day will remain as the third day following the transaction day ( T + 3)

Transaction Fees

There will not be any changes to the transaction fee or the day trading concession. It will be the same upon DVP implementation.

Dulani Warnakulasooriya Head of Enterprise Risk Management & Post Trade Settlement Tel: +94 112 356 532 | Email: dulani@cse.lk