The Tokyo Stock Exchange will merge with Osaka Securities Exchange Co Ltd to cope with sluggish market conditions in Japan and build scale amid a flurry of consolidation amid global rivals, the media reports said.

The move will create a powerhouse in Japan dominating both cash equities and derivatives that will rank as the third largest securities exchange globally , trailing only the NYSE Euronext and NASDAQ OMX in terms of market value of listed firms.

The new exchange lacks a convincing strategy for expanding overseas, seen as a key challenge given the weak prospects for equities trading and new listings as the economy sputters along with little hope for strong growth.

Both the companies said they would merge operations in January 2013 after the larger but unlisted Tokyo bourse takes a minority stake in the listed Osaka exchange in a public tender offer.

The OSE will keep its listing as the surviving entity after the merger. The Tokyo Stock Exchange is the third largest stock exchange in the world by aggregate market capitalization of its listed companies.

Osaka Securities Exchange is the second largest securities exchange in Japan in terms of amount of business handled.