Suppose the NYSE has a new rule where trades only happen once a day, in a morning auction. Imagine that you just bought some stock at the auction in a certain company. Later on in the day, the company announces some catastrophic news, but you have to hold on to your stocks until the next day's auction, only to suffer great loss when you sell.
Meanwhile, on a options exchange, a different exchange, where trading happens throughout the day because there is no such regulation, other investors in the same stock get to hedge their position by selling call options. They get to act ahead of you because their exchange has no such regulation. Unfortunately for whatever reason, you have no access to this venue. Should regulators regulate these exchanges as well? If they don't, someone will complain that it's unfair to people who have no access to such exotic venues. So, let's say they regulate all exchanges in the country.
Then, people who really want to trade in the middle of the day have to do it the 'good' old-fashion way, away from the exchange, making phone calls to each other, through brokers, where there's less transparency and more chance for corruption and unfair deals because the fair price of an instrument is unclear due to the absence of exchange activity. This would be a step backward.
Additionally, in terms of raising and reallocating capital, companies whose stocks are thus regulated will be at a disadvantage relative to their international counterparts whose stocks are more liquid in the absence of similar regulation, as capital tends to flow where trading is more convenient. So, this effect would impact the country's competitiveness as well.