Systemic risk refers to the potential for a failure or disruption in one part of the financial system to spread and impact the entire system, leading to widespread economic harm. Damage to market integrity can increase systemic risk by:

1. Creating uncertainty and mistrust: When market integrity is compromised, investors and market participants may lose confidence in the system, leading to a breakdown in normal market functioning.

2. Encouraging reckless behavior: When some market participants engage in unethical or illegal activities, others may feel pressure to follow suit, increasing the likelihood of a systemic crisis.

3. Concealing vulnerabilities: Damage to market integrity can mask underlying vulnerabilities in the financial system, making it more difficult to identify and address potential risks.

4. Disrupting financial intermediation: Damage to market integrity can impede the ability of financial institutions to perform their critical functions, such as lending and risk management.

5. Amplifying shocks: When market integrity is compromised, small shocks can be amplified, leading to a systemic crisis.

Examples of systemic risk include:

1. Financial contagion: The spread of financial distress from one institution or market to others.

2. Liquidity crises: A sudden shortage of liquidity, making it difficult for market participants to meet their obligations.

3. Market crashes: A sudden and severe decline in asset prices, leading to widespread losses.

4. Banking crises: Widespread failures of banks and other financial institutions.

5. Economic downturns: A recession or depression, leading to widespread economic harm.

Regulators and market participants must prioritize maintaining market integrity to mitigate systemic risk and ensure the stability of the financial system.