In a speech to business executives in Hong Kong, the UK Treasury minister Ed Balls says the governement was neutral on the nationality of any future owner of the LSE, but will act to safe guard the "light touch" regulatory regime currently in force in the UK.

Under the new laws, the Financial Services Authority (FSA) will be given the power to veto regulation changes proposed by foreign companies.

"This legislation will confer a new and specific power on the FSA to veto rule changes proposed by exchanges that would be disproportionate in their impact on the pivotal economic role that exchanges play in the UK and EU," says Balls.

He says the new legislation, if needed, would "outlaw the imposition of any rules that might endager the light touch, risk-based regulatory regime that underpins London's success".

The FSA says it has been consulted by the Treasury and is supportive of the proposed approach. In a statement, the watchdog says: "The new provisions will provide confidence to UK markets and stakeholders that foreign ownership will not undermine the essence of the UK regulatory regime."

The latest move follows rumblings that a takeover of the LSE by Nasdaq, which has built up a 25.1% stake in the London exchange, could eventually force UK companies to comply with tough US regulations.

Coincidentally, business leaders and academics in the US have come together under the asupices of a newly-formed Committee on Capital Markets Regulation, with a brief to examine whether arduous audit requirements for listed companies such as Sarbanes Oxley are driving business to lighter touch markets such as Hong Kong and London, or into the hands of private equity groups.