Hoping to take “a step towards the revitalization of the Japanese economy,” the Tokyo and Osaka Stock Exchanges are merging to create the world’s third-largest bourse. For Canadians, the deal should bring back some memories. Much like when the Toronto Stock Exchange and the Montreal Exchange merged in 2008, this deal combines Tokyo’s focus on cash equities with Osaka’s emphasis on futures and derivatives.
In both mergers, saving money on the back end was a key consideration.
In TSX and MX’s case, cost synergies of $25-million a year were expected as a merger would enable the two to combine technology platforms, rationalize data centres and reduce overall corporate costs. For Japan and Osaka, the exepcted cost synergies of 7-billion yen a year total one-eighth of the merged company’s costs.
However, Japan hopes this deal does more than simply save some money.
Despite listing a huge number of stocks, the country’s bourses have lost their global credibility. Japan hopes this deal attracts some more attention back to their markets. As the Financial Times pointed out, Tokyo was the world's fifth most popular venue by funds raised in initial public offerings, according to Dealogic. In 2011, it ranks 40th.
Once combined, the new exchange’s listed stocks will be worth $3.6-trillion, trailing only NYSE Euronext a $12-trillion and Nasdaq OMX Group at almost $4-trillion.
At the moment, the Tokyo exchange controls 90 per cent of cash equity trading while Osaka draws top volumes in Nikkei index futures and other derivatives. After these business are put together, it is likely they will operate under the name Japanese Exchange Group Inc.