Japan’s two major stock exchanges, Tokyo and Osaka, are to merge in a $4.1bn (£2.6bn) deal in 2013 to create the third-biggest market in the world by domestic listings.
The new exchange will hold listed stocks worth about $3.6 trillion, behind only NYSE Euronext, which has stocks valued at $12 trillion and Nasdaq OMX at nearly $4 trillion, figures from the World Federation of Exchanges show.
The agreement to merge follows months of talks and brings together their strengths in equities and derivatives.
Tokyo controls 90 per cent of Japan’s cash equity trading while Osaka draws the top volumes in Nikkei index futures and other derivatives.
The exchanges cited global exchange consolidation as a driving force behind the decision to join forces.
"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...," the TSE and OSE said in a release.
The two said they would merge operations in 2013 after the larger but unlisted Tokyo bourse buys up to two-thirds of the listed Osaka exchange in a public tender offer. The tentative name for the merged entity is Japan Exchange Group.
The TSE will offer 480,000 yen per share, or a 14 per cent premium to Monday's closing share price.
Shares of OSE, where companies such as Nintendo Co Ltd and Murata Manufacturing are listed, rose as high as 5.5 per cent before closing up 4.6 per cent.
The merger ratio values the TSE at roughly 1.7 times the OSE, which has a market capitalisation of 118 billion yen (£977m). That implies a combined market value of about 319 billion yen, which would rank 10th globally, just ahead of the London Stock Exchange.
Globally, exchanges have announced $83bn of mergers and acquisitions over the past five years, as bourses rushed to cut costs and diversify in the face of dwindling revenues from the traditional stock trading business and new upstarts.