Shareholders of Tokyo Stock Exchange Group Inc. and Osaka Securities Exchange Co. gave their OK on Tuesday to the bourses’ plan to merge Jan. 1 and create Japan Exchange Group Inc., which will be the holding company for the two exchanges.
The merger will create one of the largest securities exchanges in the world, but the new entity will likely face challenges in fighting competition and invigorating sluggish Japanese securities trading.
Combined, the nation’s two biggest bourses will rank fourth in the world in terms of the aggregate value of shares of the businesses listed as of October.
It will be the largest in Asia, though other bourses are also raising their profiles, including the Shanghai Stock Exchange, ranked seventh in the world, and the Hong Kong stock exchange, which has bought the London Metal Exchange.
With more than two-thirds of those present at the extraordinary shareholders’ meetings giving consent to the plan and no opposition being voiced, the meetings ended in less than an hour.
The TSE acquired 66.67 percent of all OSE shares through a tender offer last summer. The TSE had 107 shareholders as of March 31, many of them securities houses.
Cash stock trading on the two exchanges is expected to be confined to the TSE by next July. The TSE already controls more than 90 percent of cash stock transactions in Japan.
The OSE, better known for its markets for financial derivatives products such as stock index futures, will handle all derivatives products of the two exchanges by March 2014.
During the investors’ meeting in Tokyo, a corporate shareholder pointed to the difference between the transaction fee charged by the Mothers and Jasdaq emerging markets, which will be operated separately under the TSE for the time being.
“We will look into the difference of transaction fees,” Tokyo Stock Exchange President Atsushi Saito said. “Our basic thinking is to share all the benefits generated by the merger with trading participants.”
With exchanges around the world vying to attract investors beyond borders, the government came up with a plan under its growth strategy adopted by the Cabinet in July to set up a comprehensive exchange that would be Asia’s biggest, with expanded trading options such as commodities futures.
The merger also comes at a time when confidence in the securities industry has been undermined by insider trading involving officials of major securities houses. The merged exchange may be called on to provide enhanced oversight to stem trading irregularities.
The TSE reported computer system problems with cash stocks in February and derivatives trading in August, temporarily suspending trading both times. For the new exchange, ensuring smooth trading will also be a major challenge in gaining the trust of investors both inside and outside Japan.
Both the TSE and OSE trace their origins to stock trading companies set up in 1878. In 2000, the TSE absorbed the Niigata and Hiroshima exchanges and changed its status into a stock company in 2001. It set up a holding company in 2007.
The OSE also became a stock company in 2001. Since 2004, its shares have been trading on what is now the Jasdaq market for emerging companies at the Osaka bourse.