The Australian Stock Exchange (ASX) has announced plans to merge with the country's futures exchange group, SFE.
The merged firm will be the leading exchange in the Asia-Pacific region
The deal will create the world's ninth-largest listed exchange, worth an estimated 5.3bn Australian dollars ($3.75bn; £2.14bn).
Under the deal, ASX will pay A$16.93 per SFE share - valuing the firm at A$2.29bn - and take a controlling 59.8% share in the merged company.
ASX said that it expects the deal to be earnings positive by 2008.
"The businesses uniquely complement each other," ASX chairman Maurice Newman said.
"Combined, they create the leading, integrated financial markets exchange in the Asia-Pacific region, able to punch above its weight in the global capital markets."
SFE chairman Rick Holliday-Smith added that the move was a "logical progression" for the exchange.
The proposed deal to combine the country's leading securities and derivatives markets has already won tentative approval from the Australian Competition and Consumer Commission. A similar move was blocked in 1999.
AUSTRALIAN STOCK EXCHANGE
Created in 1987 from merger of six regional markets
Listed on market in 1998
Domestic market capitalisation of A$975bn (as of June 2005)
1,774 companies listed
The deal follows a trend of market consolidation across the globe.
The London Stock Exchange recently turned down a $4.2bn takeover offer from the US Nasdaq market, having already rebuffed a number of other bids.
"If you look at what's been going on internationally, there is consolidation taking place," Mr Newman told journalists.
"This is very much in the national interest and I think that will be seen more forcefully than perhaps seven years ago."
Mr Newman will remain chairman of the merged group, and ASX managing director Tony D'Aloisio will take the same post at the enlarged firm.
ASX said the deal would have significant benefits for both sets of shareholders, as well as leading to significant cost savings of between A$14m and A$18m by 2008.
The group also said it would return up to A$100m in cash to shareholders of the merged group.
Trading on Australian financial markets has surged since 2002, with turnover growing at an average of 20% a year.
Shares in the two companies surged on the news with SFE jumping almost 27% to close at A$17.95 while ASX rose to a two-month closing high of A$35.20.