Bits Quote by Kenneth Arrow
“There is a bit of a problem with the match between derivative securities markets and the primary markets. We have long ago instituted principles, essentially high margin requirements, to prevent certain instabilities in the stock market, and I think they're basically correct. The trouble is that there's a linkage, let's say, between something like the stock market and the index futures markets, and the fact that the margin requirements are very different, for example, played some role in the October '87 crash.”
About This Quote
Source Speech: Financial regulation forum, 1987
The speaker notes mismatched margin requirements between stock and futures markets contributed to market instability, citing the 1987 crash.
In simple terms: Different market rules can cause systemic risk.
Key Takeaway
Align margin policies across related markets.
Themes
finance
regulation
systemic risk
market design
Mood
analytical
concerned
Type
economic
policy
When to use this quote
- risk management meetings
- policy drafting
- financial education
Key Concepts
margin requirements
derivatives
market linkage
Questions to Reflect On
- How can regulators balance stability with market efficiency?
- What mechanisms can better synchronize market rules?
A Different Perspective
Over‑regulation may limit market liquidity.
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