Last week, in a speech to the British Chamber of Commerce in Hong Kong, Ed Balls, Economic Secretary to the UK Treasury, said that the UK Government would seek to legislate to protect the "light touch", principles-based regulation of the London Stock Exchange (LSE). This has been seen as a defence against the US’s Sarbanes-Oxley (SOX) rules being imposed on LSE-listed firms as part of a US acquisition of the LSE and has raised both criticism in the US, as this is seen as protectionism against an American take over of the LSE, as well as support from the LSE management.

The Treasury statement says that the legislation will give the UK regulator, the Financial Services Authority, the power to veto rule changes proposed by exchanges and will ban changes that might endanger the light touch, risk based regulatory regime that the Treasury claims underpins London's success. However this legislation will have nothing to say about the the nationality of the ownership of UK exchanges, and is claimed that it will make the overseas takeover on any UK exchange neither easier nor more difficult.

This action is seen as a response to the 25.1% stake that the US's NASDAQ now holds in the LSE. Last year a bid for take over was turned down by the LSE but NASDAQ will be free to bid again in two weeks time. The LSE has recently been attractive to global firms seeking to raise capital but being reluctant to comply with the onerous SOX Section 404 rules and the legislation is designed to allay industry concern that a NASDAQ takeover would open the door to the imposition of SOX on LSE listed firms. At the same time, new listings on US exchanges have plummetted.

The legislation was described by the US regulator, the Securities and Exchange Commission (SEC) as "inconsistent with the conversations [the SEC has] been having with the FSA" with the second regulatory summit scheduled for November. Harvey Pitt, a former chairman of the SEC, said, in an interview with the Financial Times, that the legislation was "throwing down the gauntlet" when what was needed was international co-operation.

However, the response of Clara Furse, Chief Executive of the LSE, in a comment article in the FT, said that SOX was not the prime culprit in the flight from US exchanges and the success of the LSE. She said London had a deeper pool of international liquidity, a wide range of services, was the gateway to the eurozone and had cheaper underwriting fees. Furse went on to say that the regulation, the principles-based approach, and the corporate governance standards of London were seen as first class and that it was this that was driving business to London. Indeed in 2000, before SOX, London still had more international listings than either the NYSE or NASDAQ. Furse said that "The British Government also sees the City (of London)'s success as part of the country’s growth story … The Lesson is clear. There is a great deal more to creating a thriving global market than changing the rules."