Market integrity is maintained through a combination of regulatory oversight, self-regulation by market participants, and robust enforcement mechanisms. Here are some key methods:
Regulatory Oversight Regulatory bodies, such as the Securities and Exchange Commission (SEC) in the United States, play a crucial role in maintaining market integrity. They establish rules and guidelines for market participants, ensure compliance, and take enforcement actions against those who violate regulations.
Self-Regulation Many markets have self-regulatory organizations (SROs) that monitor and enforce ethical behavior among their members. These organizations, such as the Financial Industry Regulatory Authority (FINRA), help to uphold market integrity by setting standards and taking disciplinary actions against violators.
Enforcement Mechanisms Effective enforcement mechanisms are essential for maintaining market integrity. This includes the ability to investigate and prosecute cases of market abuse, such as insider trading, fraud, and other unethical behaviors. Penalties for violations must be significant enough to deter misconduct.