Which of the following is a characteristic of a well-run financial market?

A well-run financial market relies on effective government regulation to establish and enforce rules that ensure fairness, transparency, and integrity. Regulation is critical as it helps protect investors from fraud, promotes equitable access to information, and maintains overall market stability. Well-defined rules also help mitigate systemic risks and enhance investor confidence, which is essential for the smooth functioning of markets.

In contrast, high transaction costs can create barriers for participation, discouraging investment and trading activity. When transaction costs are high, market efficiency can decline, leading to reduced liquidity and accessibility. The presence of high default risk undermines the security of investment, causing investors to be wary and less willing to engage in the market. Lastly, a lack of information and poor risk sharing can hinder market growth and lead to inefficiencies, resulting in a mismatch between supply and demand. This demonstrates that effective regulation serves as a cornerstone for fostering a robust financial environment, where participants can operate confidently and effectively.