had only a short-term commitment to the market, and whose goals were primarily speculative rather than hedging. Among all parties involved, there was little or no expectation of the possibility of a crash or a steep decline, or understanding of the consequences of such a fall. In fact, speculative investing that depended on the bull market to continue was prevalent among individual investors, often including the brokers themselves. The key shortcomings of the futures exchange, however, were mismanagement and a failure of regulatory diligence and design. These failures were particularly grave in the area of credit controls. In Hong Kong, the approach to credit control involved a system of margins and margin calls plus a Guarantee Corporation backed by a guarantee fund. Although on paper the Hong Kong exchange's margin requirements were in line with those of other major markets, in practice brokers regularly extended credit with little regard for risk. In a lax, freewheeling and fiercely competitive environment, margin requirements were routinely cut in half and sometimes ignored altogether. Hong Kong also had no suitability requirements that would force brokers to screen their customers for ability to repay any debts. The absence of oversight creates an imbalance of risk due to moral hazard: it becomes profitable for traders with low cash reserves to speculate in futures, reaping benefits if they speculate correctly, but simply defaulting if their hunches are wrong. If there is a wave of dishonored contracts, brokers become liable for their clients' losses, potentially facing bankruptcy themselves. Finally, the Guarantee Corporation was severely underfunded, with capital on hand of only HK $15 million (US $2 million). That amount was obviously inadequate for dealing with any large number of clients' defaults in a market trading around 14,000 contracts a day, with an underlying value of HK$4.3 billion. The Black Monday crash initially left about 36,400 contracts worth HK$6.7 billion [US $1 billion] outstanding. As late as April 1988, HK$800 million of this still had not been settled. According to Neil Gunningham, the accumulative effect of these shortcomings was nearly fatal to the Hong Kong futures market: "Whereas futures exchanges elsewhere [in the world] emerged from the crash with only minor casualties, the crisis in Hong Kong has resulted, at least in the short term, in the virtual demolition of the Futures Exchange." Finally, in the interest of preserving political stability and public order, the Hong Kong government was