A reverse pension contract, or “reverse pension,” is the purchase of securities with the agreement to sell them at a higher price at any given time. For the party that sells the guarantee (and agrees to buy it back in the future), it is a buy-back (RP) or repo contract; for the other end of the transaction (purchase of security and consent to the sale in the future), it is a reverse repurchase agreement (RRP) or Reverse Repo. An RRP differs from Buy/Sell Backs in a simple but clear way. Purchase/sale agreements document each transaction separately and provide a clear separation in each transaction. In this way, each transaction can be legally isolated, without the other transaction being fully feasible. On the other hand, the RRPs have legally documented every step of the agreement under the same treaty and guarantee availability and right at every stage of the agreement. Finally, the warranty in an RRP, although the security is essentially acquired, usually never changes the physical location or actual property. If the seller is late to the buyer, the warranties must be physically transferred. Whether an investor who does not wish to reinvest can get his money back depends on the resolution rules that are discussed in detail below. Suppose S > O > F. The first inequality reflects the fact that investors prefer to invest in a surviving trader to leave their money un invested.
The second inequality reflects the fact that investors prefer to keep un invested cash rather than invest in a failing trader because they avoid the cost of winding up their guarantees. Each investor decides whether or not to invest, taking into account what other investors are doing. I focus on situations where an investor cannot get better if he changes his decision unilaterally. Formally, I focus on Nash balances in strategies that are not weakly dominated. A Nash balance is a set of strategies, one for each investor, so that no investor is encouraged to unilaterally change his action. One strategy is weakly dominated when another strategy offers such a good or better payment, regardless of the actions of other investors. Current practice: How to dissolve the tri-party deposit can make the market unstableS. As a result, investors hold cash before making their reinvestment decision.
The table below reports the payments to the representative investor, I, in the three-party-repo market with management. The top row shows how many other investors reinvest, and each cell displays the payment that the investor will receive because it has decided to invest or not to invest. With rewinding, investor I always earn O when she decides not to invest, because the clearing bank returns the money to investors before they have to make their decision to reinvest. This is a key feature of rest demaging. The main consequence is that an investor is better able not to invest if he feels that other investors are not allowed to invest, since O > F. Of course, Investor I is more likely to invest if he thinks other investors will invest, since S > O.