The City watchdog is pressing ahead with controversial plans to overhaul stock market rules that would allow oil giant Saudi Aramco to choose London for its record-breaking flotation.
The Financial Conduct Authority (FCA) is consulting on proposals to create a new category of listing that could pave the way for Aramco to float in the City in what is set to be the biggest initial public offering (IPO) in history.
Saudi's state-owned Aramco is preparing to list only around 5% of its shares and the FCA plans would allow the group to side-step rules that companies must sell at least 25% of their shares to gain a "premium" status.
The FCA said it wants to set up a new premium listing category for sovereign-controlled companies, which would allow them to avoid the stigma of a "standard" listing.
But there has been outcry over the move, with investors and governance groups warning against bending stock market rules.
There are worries that such a small shares placing on a premium listing could leave investors holding shares in a relatively illiquid stock.
Saudi officials are said to have valued Aramco at more than two trillion dollars (£1.55 trillion) and g iven its size, even a 5% listing would mean the stock would automatically become a significant part of many passive equity funds.
Institutional investor Royal London Asset Management said last month that special concessions for Aramco would be "highly inappropriate".
Although the listing would clearly be a "prize asset" for the London Stock Exchange (LSE), Royal London said it "flies in the face of what is acceptable".
But Andrew Bailey, chief executive of the FCA, said sovereign owners are "different" to private sector individuals or companies, a fact that has been " long recognised" by investors.
He added: " Regulatory protections for investors lie at the core of the listing regime. However, it is important that these protections remain well-targeted.
"Refining the listing regime in this way would make UK markets more accessible whilst ensuring that the protections afforded by our premium listing regime are focused and proportionate."
A London listing would be a major victory for the City, given the uncertainty created by the Brexit vote, and LSE boss Xavier Rolet no doubt had his eyes on that prize when he accompanied Prime Minister Theresa May on a recent high-profile trip to Riyadh.
The FCA's deadline for responses to its consultation is October 13, with aims to publish its conclusions towards the end of the year.
Ashley Hamilton Claxton, corporate governance manager at Roy al London, warned the FCA's plans would be "bad news" for the City and would undo work in recent years to uphold strong governance and protect minority shareholders.
"In our view, the listing rules should apply for any premium listing, regardless of whether the controlling investor is a private individual, a consortium or a sovereign state," she said.
Chris Cummings, chief executive of the Investment Association (IA), said: " Investors believe a premium listed segment without these investor protections is not a premium segment and will not provide the protections that investors expect."
But he added it was " vitally important we maintain a good flow of high-quality and well-run businesses from across the world, coming to list on the London market".