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Ushered in to safeguard Americans after the collapse of the energy trading company Enron, the rules are seen as too draconian and stifling by many businesses.
However, Mr McCarthy stressed that foreign regulation was unlikely to be imposed in the near future. He said that neither the FSA nor its American equivalent, the Securities and Exchange Commission, thought that a change of ownership would mean the import of foreign regulations to London for now.
Mr McCarthy said: 'We believe that there could be circumstances where a more complex regulatory position may arise. Theoretically, in the longer term, a new entity might seek to achieve further benefits from rationalisation of its regulatory structure. This could at the extreme involve the LSE no longer being subject to UK regulation.'
The FSA expects any bidder to disclose whether its proposals may lead to such a possibility. Further investigation would be required should there be any plan to operate the LSE entirely from outside the UK and avoid domestic regulation, Mr McCarthy said.
In March, Nasdaq committed to preserving FSA regulation for the main market and the Alternative Investment Market should it acquire the LSE. Its offer was rebuffed, but since then the American exchange has built a 25.1 per cent stake in the LSE, and many within the City expect a fresh offer to follow.
In February 2005, Mr McCarthy dealt a blow to an approach from the Deutsche Börse by highlighting concerns about future regulation arising from a foreign takeover. At that time, he said that users' fears over listing rules and investor protection would be allayed by the LSE having a parent company based in the UK and its primary listing on the London market. Under the German proposal, that was impossible. Deutsche Börse now wants a merger with Euronext, the operator of the Paris, Lisbon and Brussels exchanges and London's Liffe derivatives exchange. Euronext, however, has agreed to a transatlantic merger with the New York Stock Exchange.
The world's biggest exchanges are driving towards consolidation, fuelled by the promise of hefty cost savings and a need for scale. Exchanges are essentially sets of computers running trading platforms, and the elimination of two sets of IT costs can deliver substantial savings.
By Gary Parkinson