The List: The Next Most Powerful Stock Exchange

London Stock Exchange

Market cap: $3.5 trillion

Leading index: FTSE 100, which is up by nearly 1,000 points over the past 12 months, a 20 percent increase

Why it could be No. 1: Less regulation and fewer lawsuits. Already the worlds fourth-largest market, Londons exchange has been attracting the eye of companies leery of the onerous regulatory requirements of Americas Sarbanes-Oxley Act, enacted in 2002 in the wake of high-profile corporate collapses like Enron. Britain also has laws that discourage frivolous class-action lawsuits.

Why it wont: Taxes. Britains rate of corporate taxation is around 30 percent. Although that is lower than the tax rates in much of Western Europe, its substantially higher than the rate of corporate taxation in nearby Ireland, where some firms have already moved, and far higher than rates in the United States. HSBC, the largest firm listed on Londons exchange, has said that it could save more than $750 million a year by moving elsewhere.

Photo: Terence Ong Hong Kong Stock Exchange

Market cap: More than $1 trillion

Leading index: Hang Seng, up by 4,000 points this year, a 25 percent increase

Why it could be No. 1: Chinese companies love it. Firms emerging from Chinas red-hot economy used to sell depository receipts on the NYSE. Now, they turn to Hong Kong. Last month, the HKSE hosted the $19 billion initial public offering (IPO) of the Industrial and Commercial Bank of China, the worlds largest IPO to date. Next year, Hong Kongs stock exchange will raise more money through IPOs than New Yorks three exchanges combined.

Why it wont: Too many unknowns. Mounting tension between Taiwan and China has long worried Hong Kong investors. Theres also the chance that an epidemic, such as SARS or avian flu, or political unrest among Chinas 1.4 billion citizens could cause stock prices to plummetboth risks that could make other markets more attractive.

Photo: Nichalp Bombay Stock Exchange

Market cap: $740 billion

Leading index: BSE SENSEX, up some 5,000 points this year, a 60 percent increase

Why it could be No. 1: Indias human capital. Although India cant compete with China for cheap labor, its strength lies in high-skill industries such as pharmaceuticals and software, which are fueling a record-breaking performance for the exchange. Bombays exchange is doing so well, in fact, that the NYSE has expressed an interest in purchasing a part of it. Such a deal could lead to a significant rise in the number of listings.

Why it wont: A lack of transparency and technology. The BSE has the same problems that plague much of India, namely a lack of infrastructure. Technical problems with the exchanges computer system routinely cause delays in trades and reinforce a concern about the lack of transparency in deals.

Photo: Manuel Pajer Shanghai Stock Exchange

Market cap: $460 billion

Leading index: SSE Composite, which is up by about 900 points this year, an 80 percent increase

Why it could be No. 1: Because Beijing says so. Hong Kong may be the hottest market in China, but Beijing is seeing to it that Shanghai sees a piece of the pie. And with its economy growing at 10 percent or more a year, China is certainly large enough to sustain two massive exchanges. When Industrial and Commercial Bank of China went public last month, it was listed in both Hong Kong and Shanghai. The mainlands exchange got $6 billion of the $19 billion up for grabs.

Why it wont: Communism. In the event of political unrest, Shanghai will not be able to isolate itself from collapse as Hong Kong can. And though China may have one of the worlds fastest growing economies, it also has a communist government and a command economy. The Chinese Communist Party makes sure its officials not only remain at the helm of government companies that go public, but that they control a significant number of shares as well.