Final answer:
Financial markets are regulated to maintain the solvency of financial institutions, minimize excessive risk-taking, and ensure transparency and the fair dissemination of information to the public and stakeholders.
Step-by-step explanation:
Financial markets are regulated to ensure stability and transparency within the economy. Regulation is important for several reasons. Firstly, it helps maintain the solvency of financial institutions by avoiding excessive risk through a set of requirements, such as reserve and capital requirements.
Secondly, regulations impose restrictions on the types of investments institutions may engage in, thereby reducing the impact of risky assets on an institution's financial health. Moreover, regulation serves the critical function of defining standards for providing information to shareholders, depositors, and the public, which helps in making informed decisions and promotes fairness in the market.