Payment-versus-payment (PvP) is a settlement mechanism that ensures that the final transfer of a payment in one currency occurs only if the final transfer of a payment in another currency or currencies takes place.
In July, the Global Foreign Exchange Committee published the results of a three-year review of the FX global code. Given the potential risks associated with FX settlement, the committee identified a need to strengthen its guidance on settlement risk to place greater emphasis on the usage of PvP settlement mechanisms.
Principle 35 of the code now states that market participants should reduce their settlement risks as much as practicable, including by settling FX transactions through services that provide PvP settlement.
One of the actions highlighted in a June 2020 Financial Stability Board (FSB) report was to encourage observance of existing international guidance on the use of PvP and develop options that could increase its use – as well as understanding of why it might not be used.
Analysis conducted by the Bank for International Settlements (BIS) suggests that the proportion of trades executed with PvP protection has fallen in recent years.
