The Tokyo Stock Exchange (TSE) and the Osaka Stock Exchange (OSE) have said they will merge to combat slowing market conditions in Japan.
The move will create the third-largest bourse in the world, and the largest in Asia.
Talks of a merger began after Japan lost its place as the world's second-largest equity market to China.
Equities trading and new listings have been slow in Japan, as the economy suffers deflation and sluggish growth.
The BBC's Roland Buerk in Tokyo says the move is an attempt by Japan to maintain its place in the world.
He says the TSE is trying to keep up with the competition, and become more efficient.
Some of Japan's most iconic companies are listed on the TSE, including Toyota Motor and Sony.
However its benchmark Nikkei 225 index has been in decline for years.
In terms of share sales, Japan falls short of rival China.
Japan had $551m worth of initial public offerings this years, according to Bloomberg data. That accounts for 0.5% of global trade.
In comparison, China's share sales amounted to $39bn during the same time period.
Our correspondent says this decline is what is driving this merger.
He says they are hoping that by combining their resources they can once again become one of the growing hubs of the world in terms of shares.
The two exchanges will combine operations in 2013, after the larger Tokyo bourse buys two-thirds of the Osaka exchange in a public tender offer.
Under the agreement, the TSE will pay Y480,000 ($6,230; £3,990) for each OSE share. Shares of OSE closed at 421,000 yen on Monday.
In a statement, the TSE said they expected to save about 7bn yen in costs related to the integration of trading systems.