What is the primary purpose of stock market regulation?

The primary purpose of stock market regulation is to ensure fair trading practices. This involves creating and enforcing rules and standards that protect investors and maintain market integrity. Regulations are designed to prevent fraudulent activities, such as insider trading and market manipulation, which can erode trust in the financial system. When investors believe that they are operating within a fair and transparent environment, they are more likely to participate in the market, which can ultimately lead to a more stable and efficient pricing mechanism for securities.

The emphasis on fair trading practices means that all investors, regardless of their size or influence, have equal access to information and opportunities. This helps to create a leveled playing field where competition is based on information and merit rather than unfair advantages.

The other options do not align with the fundamental goals of regulation. For instance, increasing stock prices or limiting investor participation could undermine the market's efficiency, while decreasing market size does not address the need for fairness and transparency in trading activities. Therefore, ensuring fair trading practices is at the core of stock market regulation, promoting trust and encouraging investment in the market.