Mitsubishi UFJ Financial Group and Morgan Stanley have agreed to merge their securities operations in Japan, in a bid to strengthen their respective networks amid a tightening global regulatory environment.

The two financial services companies said that two entities will emerge from the deal. The announcement comes at a time of continued merger and acquisition activity in Asia's wealth management and private banking market.

The first entity, called Mitsubishi UFJ Morgan Stanley Securities Co Ltd, will integrate MUFJ Securities' wholesale and retail operations with Morgan Stanley Japan's investment banking units. The resulting firm will be 60 per cent owned by MUFG, which will then select the president and chief executive officer, while the remaining 40 per cent will go to Morgan Stanley, which will decide on the chairman. There will be a split of responsibilities as regards the choice of the other executive positions.

The second entity, Morgan Stanley MUFG Securities Co Ltd, will include MSJS' existing businesses, minus investment banking. Here, Morgan Stanley will hold a 51 per cent voting interest, while MUFG will have 49 per cent. MUFG will decide on the entity's chairman, while the president and chief executive officer's post will be filled by Morgan Stanley.

"We are pleased with the progress we are making in our global alliance with Morgan Stanley and, through the combination of these two securities companies, we are confident that we can provide the highest quality services to our customers in Japan," said Nobuo Kuroyanagi, the president and CEO of MUFG.

The transaction is expected to be completed by May 2010, subject to regulatory approval, according to a statement issued by the groups.

The announcement came shortly after Mitsubishi UFJ Securities said in another statement that it will be adopting an intermediate holding company structure starting April 2010.

A preparatory company, Mitsubishi UFJ Securities Spin-off Preparation Co Ltd, has been established to prepare for the split of the firm's securities supervising and business execution functions prior to its planned alliance with Morgan Stanley.