Arm's length

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An arm's length financial market is a market where there is less interaction between the one who is being financed and the one who does the financing. Buyers and sellers do not have a relationship with one another. [1]

A good example of an arm's length market is the US financial market, while the European financial market is an example of a relations based market, although in Europe the arm's length type market is growing. Arm's length based markets deliver superior performance to relation based markets when the firms and market are large, where firms are more formally organized, have good transparency and strong legal enforcement along with a higher number of revolutionary than evolutionary innovations.

In the workplace, supervisors and managers deal with employee discipline and terminations of employment at arm's length through the human resources department, if the company has one. In such cases, terminations and discipline must be rendered by staff who have the training and certification to do so legally. This is intended to protect the employer from legal recourse that employees may otherwise have in the event that it can be demonstrated that such discipline or terminations were not handled in accordance with the latest labour laws. For employees in unionised environements, shop stewards can represent the employee, whereas the HR department represents the company, so that both sides are on a more equal footing and can resolve matters outside of court, using informal negotiations or a grievance, saving both sides time and money. The arm's length dealings in this case mean that both an employee and a supervisor each have a qualified advocate.

In real estate "arm's length" refers to the person you are selling your property to not being related to you, therefore not getting a price break. Used often in appraisal.