What does PvP stand for in FX settlement?

What does PvP stand for in FX settlement?

• A. Payment versus Payment; system used within CLS Bank to settle FX transactions between member banks
• B. Private value protection
• C. Payment verification protocol
• D. Profit variance program

Answer: (A)

Payment versus Payment means that the transfer of one currency happens only if the transfer of the other currency occurs as well. In FX, this eliminates principal risk by ensuring both sides of a trade settle simultaneously. CLS Bank uses a PvP settlement mechanism, tying the two legs of a trade together so neither leg settles unless the other does. If one party can’t fulfill both legs, settlement for that cycle isn’t completed, preventing one party from paying without receiving. The other options aren’t relevant terms in FX settlement.

Payment versus Payment means that the transfer of one currency happens only if the transfer of the other currency occurs as well. In FX, this eliminates principal risk by ensuring both sides of a trade settle simultaneously. CLS Bank uses a PvP settlement mechanism, tying the two legs of a trade together so neither leg settles unless the other does. If one party can’t fulfill both legs, settlement for that cycle isn’t completed, preventing one party from paying without receiving. The other options aren’t relevant terms in FX settlement.