The new law will allow regulatory changes to be blocked

Treasury Secretary Ed Balls said the new laws would protect the UK's "light touch, risk-based regulatory regime".

There has been talk that the US-based Nasdaq, which already owns 25% of the LSE, may buy the UK exchange outright.

There are fears that if this happened UK-listed firms would be subject to US rules, which are seen as more onerous.

Veto power

In the wake of US corporate scandals in the late 1990s, accounting rules applied to US firms were made more stringent as a safeguard against similar incidents happening again.

Chief among them was the Sarbanes-Oxley Act, passed in 2002, which increased the reporting requirements for companies.

However, these rules are more onerous than the rules governing UK firms.

Ed Balls wants the UK to keep its "light touch" regulatory regime

If the Nasdaq acquires the LSE, some are concerned that firms listed on the London exchange might have to meet these stricter rules.

Mr Balls said the legislation would reinforce the role of the UK's Financial Services Authority (FSA) to prevent this from taking place, by allowing the watchdog to veto certain rule changes.

"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 [prevent that]", said Mr Balls.

Technology-focused Nasdaq increased its stake in the London Stock Exchange (LSE) to 24.1% earlier this year, having initially bought a 15% share, and then upped it to 18%.

The moves followed Nasdaq's �2.43bn ($4.2bn) takeover bid for the LSE, which the London exchange rejected.

Mr Balls, who was speaking to business leaders in Hong Kong as part of a trip to promote the City of London, insisted that the UK was not opposed to foreign ownership but only concerned over regulation.