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Tokyo Exchange CEO Saito Changes Mind on Osaka Amid Merger Wave

Tokyo Stock Exchange Group President Atsushi Saito
Tokyo Stock Exchange Group President Atsushi Saito speaking in Tokyo. Photographer: Haruyoshi Yamaguchi/Bloomberg

Atsushi Saito, president of Tokyo Stock Exchange Group Inc., said in November there would be no value in expanding Japan’s biggest stock exchange through mergers. Yesterday, the 71-year-old said he’s considering a marriage with an old rival.

Saito, who joined the Tokyo bourse as its president in June 2007, said he’s looking “positively” at holding talks with Osaka Securities Exchange Co. A deal between Japan’s largest bourses would be the latest in a rush of planned unions totaling more than $21 billion since October, when Singapore Exchange Ltd. announced a plan to take over ASX Ltd., operator of Australia’s main equity and derivatives market.

“He probably looked around at everybody else and thought, ‘Are we going to be OK?’” said Naoki Fujiwara, who helps oversee $6 billion in Tokyo at Shinkin Asset Management Co. “In an environment where everyone globally is merging, this is what you have to do in order to survive.”

The TSE, the center of Japan’s stock trading since 1878, faces increasing competition from alternative platforms including Chi-X Japan Ltd., owned by Saito’s former employer Nomura Holdings Inc., and exchanges in countries such as China, which briefly surpassed Japan as the world’s second-largest equity market last year. Competition was part of the reason London Stock Exchange Group Plc last month agreed to purchase Canada’s main bourse and Deutsche Boerse AG agreed to buy NYSE Euronext for $9.53 billion, forming the world’s biggest exchange operator.

‘No Successful Deals’

The possibility of discussions with Osaka is a change of heart for Saito, who has criticized exchange mergers in the past.

“We’re not thinking of any mergers or alliances with other exchanges at present,” Saito, who once had his salary docked after a malfunction on TSE’s derivatives venue, said in a Nov. 18 interview. The Tokyo bourse planned instead focus on overseas listings and improving trading speed, Saito said, adding that he has “yet to see any successful deals.”

The turnaround isn’t the first for Saito, who worked for 35 years at Nomura Securities Co. On Oct. 26 he said that Singapore Exchange’s plan to combine with Sydney-based ASX wouldn’t be favorable for the Tokyo bourse, which owns almost 5 percent of its Singapore rival.

“It’s not a good story,” he said at the time. “Our shareholdings will be diluted, with our stake falling to around 3.1 percent. It’s possible we’ll have a loss of hundreds of millions of yen.”

Two weeks later, Saito told Reuters that the TSE wouldn’t oppose a takeover of Australia’s stock exchange by Singapore Exchange. The step might encourage other bourses in the region to merge, he said, according to the report.

Words and Actions

“What he says and what he does are sometimes different, but I don’t think the direction he’s taking is wrong,” said Shinkin’s Fujiwara. “You can say that he’s been slow, but none of this happens overnight.”

Shares in Osaka Exchange climbed as much as 12 percent yesterday before closing 6.9 higher at 460,000 yen after Saito said the sooner talks begin, “the better.” While Osaka is the only Japanese exchange offering Nikkei 225 Stock Average futures, the number of stocks trading on it has dwindled by 15 percent in the last four years as companies cut dual listings and focused on the nation’s capital.

Rushing to List?

Adding Osaka’s derivatives market would build on Saito’s efforts to modernize the Tokyo Exchange. He oversaw the implementation in January 2010 of the Arrowhead trading system, which cut the time it takes to execute trades to less than a second and is now being offered for export.

Saito was among several executives whose salaries were cut by 10 percent for a month after a failure of the bourse’s derivatives trading system on Feb. 8, 2008, caused trading in a Topix index future to be halted for 1 1/2 trading days.

The Tokyo bourse yesterday sent a statement that no decision has been made on a merger, responding to a Nikkei newspaper report. The Osaka exchange, which also operates the Jasdaq Securities Exchange, issued a statement saying there was no truth to the report.

Saito said yesterday the exchange will begin the process of listing its shares after reporting earnings for the period ending March. The Tokyo exchange delayed an initial public offering in March 2009 after the biggest global financial crisis since the Great Depression.

“At a time when exchanges are going through mergers and acquisitions, Japan’s exchanges need to first become bigger and establish a stronger presence before going into overseas merger talks,” said Tsutomu Yamada, a market analyst in Tokyo at Securities. “Japan is trying to escape from silly competition between regional exchanges, and move towards one grand coalition.”

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