Fund managers Aberdeen Asset Management and Standard Life have confirmed they are holding talks about a possible all-share merger.
It follows a report on Sky News that the companies were exploring an £11bn merger.
The move would create one of the UK's largest fund managers, overseeing assets worth £660bn.
The companies said the deal was subject to a number of conditions, including shareholder approvals.
Under the terms of the potential deal, Aberdeen shareholders would own 33.3% and Standard Life shareholders 66.7% of the combined group.
That reflects Aberdeen's £3.7bn market capitalisation and Standard Life's £7.5bn value.
Standard Life chairman Sir Gerry Grimstone would become chairman of the board, with Aberdeen's chairman Simon Troughton becoming deputy chairman.
Standard Life and Aberdeen's current chief executives, Keith Skeoch and Martin Gilbert, would become co-chief executives.
Analysis: Douglas Fraser, BBC Scotland business/economy editor
The logic of putting the firms together is to build investment clout, in competition with US-based giants such as Blackrock.
They want to assert that active management of funds can work for clients.
With those passive funds growing, this offers "significant synergy potential", which is likely to mean duplicate roles being shed. The two companies employ about 9,000 people.
That clout as a shareholder can also be applied to shaping the decisions of companies in which the asset managers have stakes.
In a joint statement, the companies said: "It is envisaged that the board of directors of the combined group would comprise equal numbers of Standard Life and Aberdeen directors.
"The combined group would draw on the expertise across its markets and would endeavour to harness the talent in both companies to optimise the benefits for clients and shareholders of the combined group."
Last month Aberdeen reported big outflows from its funds following Donald Trump's victory in the US presidential election.
Aberdeen said investor sentiment "stalled" following the US election result.
Edinburgh-based Standard Life reported recently that it shook off industry "headwinds" last year to post a strong rise in profits.