UK watchdogs 'must oversee LSE'

Mr Balls hinted the government could block the deal if prospective suitors planned to change its regulatory rules.

Last month, it emerged that US operator Nasdaq's LSE stake had grown to 25%.

Investors have raised concerns that UK-listed firms could be subject to expensive and time-consuming US rules if the LSE is bought by a US exchange.

The minister for the City added that the Financial Services Authority had been right to question the long-term implications of a foreign takeover of the LSE.

Long term view

"Sir Callum [McCarthy, chairman of the Financial Services Authority] was right to raise the potential longer-term implications of any change of ownership at the LSE in his statement this week," Mr Balls said in a speech to financiers.

"I too would expect that the exchange's stakeholders will want to satisfy themselves that any owners' plans, and any implications for the way the exchange is regulated, meet the test of being what is best for the City as a global financial centre in the long term.

"Nothing should be done to put at risk a light-touch, risk-based regulatory regime," he added.

In his speech in the City, Mr Balls also warned that the UK must remain "fully engaged" with Europe, whether or not it decided to join the euro as Brussels works towards creating a single European financial market.

"That means engaging closely to influence the arguments where Britain and the City's interests are at stake - yet standing firm where UK interests are at stake," he added.

"To withdraw from the mainstream of Europe and diminish our influence would be bad for Britain, bad for London and bad for the City."

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