It is also hoped that it will instil international best practices and principals and curb money laundering and other forms of illegal activities in the financial sector.
The legislation itself will repeal the Securities Act 1997 and three bills - the Securities Commission Act 2015, the Capital Market Act 2015 and the Central Depository Act 2015 - will be presented in the current sitting of parliament.
It will make the Securities Commission a separate and independent body with the powers to regulate and deal with capital market issues. At the moment the Securities Commission is a division of the Investment Promotion Authority.
O'Neill said the move would also address a number of ambiguities present in the existing legislation.
"Currently, the Securities Commission does not have an independent organisational and administrative structure [and] this has meant the commission [was] unable to perform its regulatory functions by providing oversight of the Papua New Guinea Capital Market," he said.
"For example, [it] was not able to give effect to the findings of the Commission of Inquiry into the Investment Corporation Fund of Papua New Guinea due to the obvious lack of powers under the existing law."
The legislation will also alter the ownership and make-up of the PoMSoX board, opening it up to competition. Two stockbrokers currently work and own the exchange, a situation that needs to change according to O'Neill.
He also said that PoMSoX has a market capitalisation of more than K60 billion ($A28billion) but less than K1 billion has been circulation in the past 17 years.
"The national government cannot allow the Port Moresby Stock Exchange to remain a closed market, owned by only two stock brokers who control the stock market and its activities," he said.
"There are many qualified Papua New Guineans and foreigners in the country who are able to provide competitive broking services and we will open the market to competition.
"While other markets, similar to Papua New Guinea have grown significantly within the same period, Port Moresby Stock Exchange has not grown as expected."
The government hopes the changes will encourage people to look at the exchange to raise long-term funding and capital, as well as urging companies to introduce new financial products into the market.