In a Delivery Against Payment (DAP) transaction, when is the buyer's payment for the securities due?

In a Delivery Against Payment (DAP) transaction, when is the buyer's payment for the securities due?

• A. At the end of the trading day
• B. Upon receipt of the securities
• C. Before placing the order
• D. After a grace period of two days

Answer: (B)

In a Delivery Against Payment (DAP) transaction, the buyer's payment for the securities is due upon receipt of the securities. This method is specifically structured to ensure that the buyer pays for the securities only once they are physically delivered or received. This protects the interests of both the seller and the buyer, as the buyer does not have to make a payment beforehand, reducing the risk of payment without receipt of the securities.

This approach contrasts with other transaction types where payment might be required in advance, which could pose greater risk to the buyer. In a DAP transaction, the timing of the payment aligns directly with the delivery, creating a clear and straightforward process for both parties involved. Thus, the correct answer highlights the fundamental principle of DAP transactions, ensuring a secure and balanced exchange.