LONDON (FORTUNE) - For years, the NYSE and the Nasdaq were the premier capital markets in the world -- as the old song goes, if you could make it in New York, you could make it anywhere.

Now that seems to be changing, with London leading the challenge to the Big Apple. In a trend many observers attribute to the burdensome regulatory requirements of the Sarbanes-Oxley law, foreign companies that want to go public are looking elsewhere.

Non-U.S. IPOs on the main London Stock Exchange raised over $16 billion this year, compared to $3.4 billion on the NYSE, according to Thomson Financial. That's an abrupt shift from 2004 and 2003, when New York outranked London.

"With globalization, companies are looking in new places," says Richard Peterson, a senior researcher at Thomson. "Maybe it's easier to be elsewhere than New York."

Of course, it's not like lights are going out at the NYSE or Nasdaq. U.S.-based firms raised more than $30 billion from IPOs on these exchanges this year. But losing business to London is a long-term threat, especially for the NYSE, which plans to go public itself early next year. (The LSE is already public and has recently been fighting off suitors like Deutchse Borse and Australia's Macquarie Bank).

And this is a loss not just to the exchanges, but for U.S. retail investors who are much less likely to look overseas for the next hot company in Russia and other emerging markets. Indeed, London has been especially successful at snapping up the listings of Eastern European and Russian companies.

So far this year, companies from the former East Bloc have raised $5 billion on the LSE, including hot energy play Novatek and steelmaker Novolipetsk. Smaller companies are turning to the LSE's Alternative Investment Market, which has looser requirements than the main London exchange.

The knock on AIM has been that it's a bit of a Wild West of risky companies -- which isn't completely off the mark -- but London lawyer Kenneth Lamb says that's changing.

"It was a lot wilder two years ago, with a lot of speculative natural resource companies," says Lamb, a partner with U.S.-based Gibson, Dunn & Crutcher. "AIM has developed since then, and it's really a diverse collection of small to midsize companies now."

Whether they end up on AIM or the main London exchange, Lamb says his clients don't have New York on their radar screen. "They don't want do deal with regulatory requirements and the issue of personal liability for directors and officers that you now have in the U.S.," he says. "I hear this constantly." '

He adds that fees for lawyers and accounting firms in the United States that help companies comply with American rules can easily hit $1 to $2 million a year. "That's money that would otherwise go to the bottom line," he says.

The Big Board isn't standing still. A spokesperson points out that with the NYSE's imminent merger with Archipelago, the electronic trading platform, the NYSE will have a venue for companies that don't meet the NYSE's stringent requirements but do want a New York presence.

In addition, the NYSE has won some promising new foreign IPOs including Suntech, a Chinese solar power company, and Patni, an India-based IT services firm, both of which went public this month. "The NYSE remains the preeminent global listing venue for leading companies around the world," says NYSE spokesperson Christiaan Brakman.

And with a listed company market capitalization of over $21 trillion, he notes, the NYSE is five times bigger than the next largest exchange in the world, with one-third of that from foreign companies. Maybe so, but the heat is on in the search for new business -- and it will only grow hotter when the Big Board goes public next year.

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See the Exxon Mobil response to last week's column on the oil windfall tax.