The settlement method refers to the method by which the obligations of a transaction are settled. It defines, if need be, the conditional processing between both the delivery and payment legs. For instance, the DvP settlement method states that the transfer of a security only happens after the payment is made.
Below are the most common settlement methods:
| Settlement method | Delivery leg | Payment leg |
|---|---|---|
| Delivery-versus-Payment (DvP) | ✓ (1 obligation) | ✓ (1 obligation) |
| Payment Free of Delivery (PFoD) | x | ✓ (1 obligation) |
| Delivery Free of Payment (DFoP) | ✓ (1 obligation) | x |
| Delivery-versus-Delivery (DvD) | ✓ (≥2 obligations) | x |
| Payment-versus-Payment (PvP) | x | ✓ (≥2 obligations) |
The settlement method has an impact on the way the settlement instructions are structured. Depending on the settlement method, the delivery, receipt, and payment instructions can be expressed separately or combined:
| Settlement method | Settlement instructions |
|---|---|
| Delivery-versus-Payment (DvP) | • Deliver versus Payment (DvP) instruction (e.g. Swift MT543) • Receive versus Payment (RvP) instruction (e.g. Swift MT541) |
| Delivery Free of Payment (DFoP) | • Deliver Free (DF) instruction (e.g. Swift MT542) • Receive Free (RF) instruction (e.g. Swift MT540) |