Glossary term
Market Integrity
Subject: Compliance and Regulation, Market Conduct and Securities
Also known as: Integrity of markets
Market integrity is the state in which financial markets operate fairly and openly, without deceit, so that prices reflect genuine supply and demand and no participant gains from cheating or secret advantage.
Explanation
Market integrity is the part of a securities regulator's mission concerned with fair dealing: everyone trading on the same facts, under the same rules. It is damaged when some people trade on inside information, when prices are pushed around by false orders or rumours, or when firms put their own interest ahead of clients in executing trades. The rules that protect it include bans on insider trading and manipulation, disclosure duties for issuers, surveillance of trading, and conduct standards for brokers. It is hard to measure directly, so regulators judge it by the absence of abuse and by whether ordinary investors keep trusting the market enough to take part. Where that trust goes, buyers and sellers stay away, trading thins and companies pay more to raise money.
Example
Surveillance staff at a securities regulator notice unusual trading in a company's shares in the days before a takeover bid is announced. They trace the orders to accounts linked to an adviser on the deal, and the regulator opens an investigation.
Not to be confused with
- Financial stability
- Stability is about the system surviving shocks. Integrity is about fair dealing and honest prices, which can fail even when the system is sound.