New rules are to come into force next year requiring businesses who want to float on the UK stock markets have four in 10 of its board members be women, or explain why not.
The Financial Conduct Authority has said companies will need to account for diversity in their top teams and will report against targets the watchdog sets a year from now.
The FCA added that some firms will not be able to meet the targets but should be able to explain why.
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At least 40% of a company's directors should be women and a woman should hold at least one of the senior board positions - either chair, chief executive, finance boss or senior independent director, the PA news agency said.
At least one member of the board should be from an ethnic minority background.
"As investors pay increasing attention to diversity at the top of the companies they invest in, enhancing transparency at board and executive management level will help hold companies to account and drive further progress," said Sarah Pritchard, executive director of markets at the FCA.
The first reports will come in a year. The rules apply to the accounting periods from the beginning of this month.
The "comply or explain" approach allows small companies or those based abroad some flexibility around the targets, the watchdog said.
It plans to review the rules three years from now to make sure they work as intended and check whether the targets should be updated.
The watchdog said: "The FCA's approach sets positive diversity targets for listed companies. If they cannot meet them, they need to explain why not.
"This approach allows flexibility for smaller firms or those based overseas.
"The rules also allow companies to decide how best to collect data from employees to show they are meeting the targets."
