Tokyo Stock Exchange has proposed a tender offer for Osaka Securities Exchange Co <8697.OS>, Japan's Asahi newspaper reported on Tuesday, as the two bourses proceed in merger talks aimed at surviving a wave of industry consolidation.

The plan by the Tokyo exchange, the world's fourth largest bourse in terms of trading volume, includes buying all OSE shares to make it a wholly owned subsidiary, the paper said.

The Jasdaq-listed OSE is set to reject the scheme, however, the report also said, suggesting a rocky road ahead for the ongoing merger talks between the country's biggest and second largest exchanges.

A TSE spokeswoman said that nothing had been decided on the issue, while an OSE spokesman said he was not aware of what had been reported by the Asahi. They both declined to confirm merger talks.

A source told Reuters in March that the TSE would begin talks with its smaller domestic rival on a possible tie-up amid a flurry of mergers and alliances among global exchanges.

But media reports have said that the merger talks are facing difficulties as both exchanges want to take the lead in negotiations. The president of the OSE told Reuters last month that merger talks with the TSE beyond June would be difficult if the Tokyo bourse insisted on listing its shares before agreeing to combine operations.

Shares of OSE climbed 8 percent to 390,000 yen, giving it a market value of about 100 billion yen ($1.23 billion). The Jasdaq index <.JSD> was unchanged.

(Reporting by Mariko Katsumura; Editing by Joseph Radford)