What Is the Concept of 'Pre-Funding' and How Does It Relate to DVP? ▴ Learn

What Is the Concept of ‘Pre-Funding’ and How Does It Relate to DVP?

Pre-funding is the requirement that a participant must deposit the necessary funds or assets into the settlement system before the settlement process begins. It relates to DVP by ensuring that the resources are available for the simultaneous exchange.

By guaranteeing the availability of both legs of the trade, pre-funding significantly strengthens the DVP mechanism and reduces the risk of settlement failure due to insufficient funds.

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