Today the handcuffs come off in Nasdaq’s bid to take the London Stock Exchange. With 25.3pc of LSE shares, the American exchange can bid for the rest at £12.43 per share.

However, sources close to Nasdaq say it can’t afford to buy at that price, so is likely to sit out the next six months. The New York-based company is already heavily in debt and may refuse to gamble, especially as it is now known the British Government intends to legislate to protect London from the onerous American Sarbane-Oxley rules and may pack off any bid to the Competition Commission.

The Times (London) reports : “… there were signs at the weekend that some investors were taking the view that, in the short term at least, the LSE share price could fall in the absence of a bid or an agreed deal. About 12 per cent of the shares are the subject of stock borrowing, a technique that is often used to go short in a share in the expectation of a fall.”

Speculation grew that Clara Furse may seek a deal with a Far East exchange.

The UK Chancellor of the Exchequer, Gordon Brown, has supported his Treasury Secretary, Ed Balls, in underlining his wish to protect the London Stock Exchange’s listed companies from rigid U.S. rules should Nasdaq succeed in its takeover ambitions.

Brown outlined the details of regulations to be added to the new Companies Bill now passing through Parliament for addition to the statute book in 2007.

“The proposals we are putting forward,” he said, “are a reminder of what we as a country are expected to do to ensure there is no doubt as to the regulation of the Exchange. This is a national decision. It is the right thing to do.”

Paradoxically, the new rules could facilitate Nasdaq’s bid by lessening opposition in London to the new owners.

It won’t, however, diminish the sense of sell-out of this central institution to London’s place as a world financial marketplace.

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.

The news that the Financial Services Authority led by Callum McCarthy is to face scrutiny by the National Audit Office is causing frustration in some quarters of the City of London.

Leaving aside a number of recent decisions, which have placed the FSA on the back foot, McCarthy believes he needs City backing in his attempt to keep regulation of London’s major markets, like the London Stock Exchange, within London’s own rules.

He believes the notion of regulation of an exchange, whether Liffe or the LSE, transferring to where the assets are owned will fail on “legal, practical and political grounds”.

Alex Brummer in the Daily Mail writes: “The idea, for instance, of the Liffe market being regulated from Paris where Prime Minister Dominique de Villepin believes it his job to reorganize the board of Airbus maker EADS — is ludicrous.”

Sir Callum McCarthy joined the FSA in September 2003 from the Office of Gas and Electricity Markets where he was Chairman and Chief Executive. He had previously held senior positions in Barclays Bank, BZW and Kleinwort Benson, as well Department for Trade and Industry.