Companies will be able to list their shares on a separate stock exchange to the ASX, in a plan that will provide a competitor to the embattled share market operator after another embarrassing error.
Financial regulator ASIC revealed on Wednesday it was "in the final stages" of considering an application by Cboe Australia to set up a new listing market in direct competition to the ASX.
Foreign investment rules would also be relaxed to allow Australian investors to access Cboe's US and Canadian exchanges as well as providing foreign investors greater access to companies listed in Australia.
The move would improve Australia's attractiveness as a destination for foreign capital, Treasurer Jim Chalmers said he hoped.
"Making our markets more competitive will make our economy more prosperous and productive," he said.
"If it goes ahead, this will mean more investment in Australian businesses and that means more jobs and opportunities for Australian workers."
ASIC has been looking at ways to promote companies listing publicly in Australia amid a rising number of firms opting to go private.
On Wednesday, the ASX bungled the latest instance of a private equity firm buying out a listed company.
US-based TPG Capital announced a deal to acquire automotive software provider Infomedia for $651 million. But the exchange attributed the purchase to the unrelated TPG Telecom, causing the telco's shares to drop more than four per cent.
The ASX owned up to its error and automatically cancelled subsequent trades, returning more than $400 million to the telco's market cap.
The bungle will further focus ASIC's scrutiny of the ASX, which is already undergoing a governance probe by the regulator following a breakdown in its settlements system and a breach of market transparency rules.
The regulator is also growing increasingly impatient over a lack of progress to modernise its electronic clearing house and a scrapped plan to upgrade it with blockchain technology in 2022.
ASIC chair Joe Longo said the move to boost competition in Australia's public markets fits in with the government's productivity agenda.
"This is important work. Our capital markets are healthy and strong but face intensifying global competition for capital and listings," he said.
Dr Chalmers also flagged moves to ease regulation requirements for small banks in a bid to level the playing field in the Big Four-dominated sector.
The government accepted in principle eight out of nine recommendations by the Council of Financial Regulators, which is made up of Treasury, ASIC and fellow financial regulators the Australian Prudential Regulation Authority and the Reserve Bank.
He will also seek feedback on implementing a "lighter touch framework" for very small banks.
