A securities settlement system carries out DvP by linking the transfer of securities to the transfer of funds. DvP is divided into Model 1 to Model 3 according to whether settlement is done one obligation at a time or on a net basis1. The Bank of Japan provides DvP settlement of Japanese government bonds by linking each funds transfer on the current account side of BOJ-NET to each bond transfer on the JGB services side2.

Consider a hypothetical example in which Securities Firm E sells a bond to Securities Firm F for 9.9 billion yen. Under DvP, the bond moves only if Securities Firm F pays 9.9 billion yen, and if it cannot pay, the bond does not move. Without DvP, if Securities Firm E delivers the bond first and Securities Firm F fails before paying, Securities Firm E has delivered the bond and cannot receive the 9.9 billion yen.

DvP does not require the two obligations to be performed at the same instant. It removes principal risk, but it does not remove the risk of systemic disruption such as an uneven distribution of liquidity after a participant defaults3.

Notes

  1. "金融市場インフラのための原則" (Principles for financial market infrastructures, provisional Japanese translation; April 2012), paragraphs 3.4.9 and 3.4.11, pages 53–54 (in Japanese). ↩

  2. Bank of Japan, "日本銀行が運営する国債振替決済制度に関する情報開示" (Disclosure on the JGB Book-Entry Transfer System operated by the Bank of Japan; July 31, 2025), section 3-1, pages 7–8 (in Japanese). ↩

  3. "金融市場インフラのための原則" (Principles for financial market infrastructures, provisional Japanese translation; April 2012), footnote 112 to paragraph 3.12.1 and paragraph 3.12.4, pages 107–109 (in Japanese). ↩