The London Stock Exchange is to be protected by new legislation from overseas regulation in the event of a sale to a foreign buyer.

Times (London) Correspondent Martin Waller outlines the fear : “If Nasdaq, the most likely bidder, does take over, it might one day be tempted to impose the much more onerous regime that governs New York under the 2002 Sarbanes-Oxley Act.”

However, speaking to business executives in Hong Kong, Ed Balls, the Economic Secretary to the Treasury, stated that the government would introduce new legislation to ensure the stock exchange operator would not be bound by stricter overseas regulations if the group is sold.

“The introduction of Sarbanes-Oxley legislation in the US has increased the regulatory burden on companies listed there and encouraged many smaller companies to seek listings outside the United States. London’s Alternative Investment Market has been a prime beneficiary of that move to find an alternative to US-based stock exchanges.”

Ed Balls claimed the government was neutral on the nationality of any future owner of the LSE. Any new regulation would give the Financial Services Authority (FSA) greater powers to assert itself over companies listed on the London exchange.

Balls went on : “The issue was that if you had a foreign owner and that owner’s home regulator starts exporting its rules to London, then the FSA would be able to not let that happen. This legislation will confer a new and specific power on the FSA to veto rule changes proposed by the exchanges that would be disproportionate in their impact on the pivotal economic role that exchanges play in the UK and EU.”

The proposed 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”.

Despite claims that this won’t impact on a future foreign buyer, one has to wonder if yet another obstacle is being thrown in the path of Nasdaq in its blatant pursuit of the LSE.