The Japan Fair Trade Commission (JFTC) has given its consent for the acquisition of Osaka Securities Exchange by Japanese bourse operators Tokyo Stock Exchange Group (TSE).

TSE proposal to takeover Osaka bourse at JPY129.6bn ($1.6bn) will create the world’s third-largest exchange based on turnover, according to industry experts.

While granting approval of acquisition, JFTC said "given the remedies proposed by the parties concerned, competition in any particular field of trade might not be substantially restrained".

The consolidation of OSE with TSE businesses will enhance their derivatives trading capabilities both domestically as well as internationally.

TSE, which manages over 90% of cash-equity trading volume in Japan, will start a takeover bid for OSE shares after obtaining regulatory approval to conclude a merger agreement.

As per the merger agreement inked by both parties, TSE will first convert the OSE, a listed company, into a subsidiary through a public tender offer, by acquiring up to 66.67% of its outstanding shares at 480,000 yen per share or $6,250 per share.

As a second step, the two companies will go ahead with an absorption-type merger whereby the OSE will be the surviving company and the TSEG will be the absorbed company. TSE shareholders will receive 0.2019 OSE share for each TSE share they own based on the merger ratio terms.

This will create a holding entity and four subsidiaries, each specializing in cash products, futures trading, settlement and self-regulation. The surviving combined holding entity will be named as Japan Exchange Group, which will control divisions of the TSE and the OSE as subsidiaries.

Once completed in 2013, TSE President and CEO Atsushi Saito will join as the CEO of the combined holding entity, while OSE president and CEO Michio Yoneda will become chief operating officer.