What Exactly is Market Integrity? An Analysis of One of the Core Objectives of Securities Regulation

Janet Austin
2016 Social Science Research Network  
One of the main objectives of securities regulation around the world is to protect the integrity or fairness of the markets. This, together with protecting investors, improving the efficiency of markets, and protecting the markets from systemic risk, form the four fundamental goals of securities regulation. However, what exactly is envisaged by this concept of market integrity or fairness? Are these simply norms of behaviour incapable of further definition? Despite their importance, relatively
more » ... ittle attention has been given to these concepts in the literature. Do they, for example, require securities regulators to just work towards eliminating dishonest trading practices such as market manipulation and insider trading? Or should regulators be required to go further and ensure, for example, transparency of corporate information, transparency of price information, and equality of access to the markets? Examining what is encompassed by the objectives of protecting market integrity and fairness is critical for a number of reasons. First, if they are only normative concepts, they may be incapable of measurement. This is problematic because it may be impossible to assess the progress of securities regulators towards achieving these goals. In addition, if they are in fact incapable of further definition and measurement, then innovations which improve market efficiency, another key goal of securities regulation, are likely to be permitted even if the innovation in question actually detracts from the fairness or integrity of the market. This is because improvements in market efficiency are generally quantifiable, and, therefore, measured improvements in market efficiency create the momentum for those improvements to be permitted.
doi:10.2139/ssrn.2814986 fatcat:srk2tbojoneothj5rcu3o4rewu