Japan's two main bourses on Tuesday announced a plan to merge their operations in January 2013 as they look to boost competitiveness and create one of the world's biggest exchanges.
The Tokyo Stock Exchange Group (TSEG) and Osaka Securities Exchange (OSE) issued a joint statement saying they "have agreed to conduct a business combination" as both look to overcome a sluggish Japanese market.
"Significant synergies should be created by combining the business of the companies, which have different areas of specialty," they said.
The bourses hope that combining the TSE, where most cash stocks including Toyota and Sony are traded in Japan, and the OSE, which is strong in derivatives trading, will boost the country's securities market.
The merged entity, tentatively called "Japan Exchange Group" would be the world's third-largest bourse behind market leader NYSE Euronext and Nasdaq OMX Group.
Senior officials at Japanese exchanges have long voiced the need to compete better with regional rivals, which have successfully lured international firms to list.
"Domestic mergers and cross-border mergers between exchanges have been gathering momentum overseas," the statement said.
"For a Japanese stock exchange to survive such global competition as a player, it must establish a highly liquid and efficient market and enhance the convenience of investors and companies through strengthening its competitiveness," the joint statement said.
This would be achieved by "expanding its scale, diversifying the financial instruments in which it deals, and reducing costs," the statement added.
The deal will see the Tokyo Stock Exchange Group conduct a tender offer for the OSE's common shares next year, and convert the OSE into its subsidiary, subject to regulatory approvals, the statement said.
The companies agreed to set a purchase price of 480,000 yen ($6,230) per share for the OSE's common shares. The price represents a 14 percent premium on OSE shares' closing price Monday of 421,000 yen on the Jasdaq Securities Exchange.
After the transaction, the two entities will merge into a combined holding company, pending shareholder approval.
"The enhanced competitiveness of all the financial and capital markets of Japan" would be "a step towards the revitalisation of the Japanese economy," the bourses said.
TSE President Atsushi Saito is expected to become the chief executive of the new company, OSE President Michio Yoneda is expected to become chief operating officer.