Osaka Shares Plunge After TSE Tender Success: Osaka Mover

Osaka Securities Exchange Co. shares headed for a record decline a day after Tokyo Stock Exchange Group Inc. won control of Japan’s No. 2 equity venue.

Osaka Securities shares sank 16 percent to 368,000 yen as of 2:36 p.m. on the Jasdaq market. Trading volume for the shares was almost 10 times its five-day average, according to data compiled by Bloomberg. The stock also fell after a report Japan’s financial market regulator may issue a business improvement order to the Tokyo bourse after its second major system error in seven months took derivatives trading offline for 95 minutes on Aug. 7.

The Tokyo Stock Exchange Group Inc. yesterday said Osaka shareholders offered to sell 80 percent of the smaller bourse’s stock at 480,000 yen per share. That was more than the 67 percent the TSE sought in a tender offer that closed Aug. 22. The companies project the deal will close in January.

“Investors are probably worrying there will be more selling pressure of OSE shares by those who couldn’t tender, as the offer exceeded the maximum the TSE would buy,” said Hiroaki Hiwada, a strategist at Tokyo-based Toyo Securities Co. “It wouldn’t be a surprise if investors are starting to worry that a merger with the TSE would cause some system problems for the OSE. The market may be starting to price in concerns about the costs to prevent the merged company from system errors.”

Japan’s Financial Services Agency may issue a business improvement order to the Tokyo Stock Exchange today, the Yomiuri newspaper reported, without citing anyone. The error, which affected government bonds, index-futures and other derivatives, was compounded by a failure of backup systems similar to that which caused the biggest disruption in six years on Feb. 2, Hiroaki Uji, director of trading systems at the bourse, said on Aug. 7.

Government Policy

Osaka’s J-Gate derivatives system uses technology from Nasdaq OMX Group Inc. and hasn’t had a major error since it began operations in February 2011, Fumihiro Yada, a spokesman for Osaka Securities Exchange, said Aug. 7. Some firms reported that placed options orders didn’t appear on the system in February this year, Yada said.

Effective control of the Osaka exchange means the Tokyo bourse won’t need the support of other shareholders to approve the deal. While regulators around the world have blocked more than $30 billion in other mergers since 2010, the marriage of Japan’s two largest equity-trading venues is part of a national plan to consolidate the country’s fragmented exchange industry amid competition from China and other emerging markets.

Japan’s government said in 2010 it wanted to create a “comprehensive” exchange that combined the country’s nine bourses into a single entity handling stocks, commodities and other securities. The country’s Financial Services Agency was involved in discussions between TSE and Osaka before the deal was announced, two people with direct knowledge of the talks said in March.

“The days when we were competing with TSE in ‘‘a small glass’’ are over,” Osaka President Michio Yoneda said in a statement yesterday. “The world exchange industry got into the age of global market competition, and each market is competing for investors cross borders. We throw off the cloak of OSE or TSE and create the all-Japan exchange.”

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