The Tokyo Stock Exchange Group and the Osaka Securities Exchange said they plan to merge.

The two exchange operators said their combination will “establish an unchallenged position” in domestic stocks and derivatives trading, as well as “enhance global competitiveness” of their platforms.

The combination, however, will do little to reset the market positions of either exchange. The Tokyo exchange is already the largest in Asia, having handled $3.2 trillion in trades in the first nine months of this year. The Osaka exchange only handled $154 billion.

The combination will create, the two firms said:

-- A leading multi-asset class exchange

-- A vertically integrated exchange group with listing, trading, clearing and settlement services

-- The only listed exchange in Japan

The group said it also hopes to become a “financial hub” for Asia. Right now, its position is challenged by three Chinese exchanges, in Shanghai, Shenzhen and Hong Kong, as well as the Singapore Exchange, the Korea Exchange and the National Stock Exchange of India.

The combination should lower collateral requirements for borkers and reduce transactions costs, through unification of systems, the two firms said.

Market participants also should be able to trade in more products, from a single combined platform. 

In January 2010, the TSE launched Arrowhead, an equity trading system that increased its ability to respond to orders quickly. In February 2011, it launched J-Gate, derivatives trading platform with standard global trading functions. On Monday, it launched Tdex+, a high-speed derivatives trading system based on Liffe Connect technology from NYSE Euronext.

The possibility of a merger first arose in March, as Japan was suffering through the after-effects of its earthquake.

The Tokyo exchange would become the majority owner of the Osaka exchange.

When the two Japanese exchanges first started to talk, four other exchange mergers were on the table. These were of the Singapore and Australian exchanges; the London Stock Exchange Group and the TMX Group in Canada; NYSE Euronext and Deutsche Borse; and BATS Europe with Chi-X Europe.

Only the last two remain on the table, with completion scheduled for the turn of the year.

-- This article first appeared on Securities Technology Monitor.