Legislation providing a power to prevent an overseas takeover of the London
Stock Exchange resulting in 'disproportionate' changes in listings rules will be well on its way to becoming law by Christmas, economic secretary Ed Balls announced in the Commons.

Balls' announcement came as the US exchange Nasdaq was on the brink of buying out the London Stock Exchange. There have been widespread fears that a takeover of the LSE by a US exchange could lead to the the implementation of Sarbanes-Oxley, and damage London's successfully light regulatory regime.

He said the government plans to introduce a stand-alone bill modifying the
Financial Services and Markets Act to give the FSA new powers that will be introduced as early as possible after the Queen's Speech.

Balls said: 'Our aim is to enable the FSA to stop recognised investment exchanges and clearing houses making changes in their regulatory provisions whose effects are likely to be disproportionate.'

He said the provisions were not intended to challenge existing regulatory provisions or make overseas ownership of UK exchanges any easier or more difficult than it is at the moment. The veto would be limited to new rules imposing an obligation or burden and to where the new requirement was 'excessive'.

The FSA would have to call for representations before acting and any planned veto could be challenged in the courts by judicial review.