Tokyo Stock Exchange and Osaka Securities Exchange <8697.OS> are in the final stages of talks to merge with the aim of combining forces in the autumn of 2012, the Nikkei newspaper reported on Monday.
Under one likely scenario being discussed, the unlisted Tokyo bourse (TSE) would first take a majority stake in the smaller but listed Osaka exchange (OSE) as early as next spring through a public tender offer, the Nikkei said.
The two would then merge operations and the Osaka exchange would remain listed as the surviving entity, the newspaper said.
Merger talks between the exchanges began in March with the aim of better competing amid weak stock market conditions in Japan and a wave of mergers and alliances among global exchanges.
The two have complementary strengths, with the Tokyo bourse controlling more than 90 percent of cash-equity trading volume in Japan and the Osaka exchange the top player in Nikkei index futures and other derivatives.
The head of the Tokyo exchange, Atsushi Saito, who originally said he wanted to list it before a merger, told Reuters last month that avoiding an initial public offering might speed up the process.
From the viewpoint of TSE shareholders, they will be listed, whether that is a direct listing or a consolidated, indirect listing, Saito said in the interview.
Two proposals being discussed would set the maximum stake to be purchased in the tender offer at either 50.01 percent or 66.6 percent, the Nikkei said.
The two firms would create a holding company and four units specializing in cash products, futures trading, settlement and self-regulation, the newspaper said.
Saito is expected to become CEO of the new company while OSE head Michio Yoneda will become chief operating officer, the Nikkei said.
The TSE and OSE both issued statements saying nothing had been decided.
Saito and Yoneda are due to meet soon with discussion likely to focus on the merger ratio.
The two sides had been unable to reach a consensus on the value of the TSE but appear to have made progress on this point, the paper said.
The TSE's market value is expected to be set at 1.5 to 2 times that of the Osaka bourse, which was 98.5 billion yen ($1.3 billion) as of Friday's close, the Nikkei said.
(Reporting by Nathan Layne; Editing by Michael Watson)