Ameritrade, T.D. Waterhouse Plot Thickens

As Ameritrade and its rival, T.D. Waterhouse, a unit of Canada's Toronto Dominion Bank, engage in talks about a possible merger, another online brokerage is looking to get a piece of the action, Dow Jones reports.

E-Trade Financial, which last month made an unsolicited bid for Omaha, Neb.-based Ameritrade is considering its options, according to people familiar with the matter. It could either sweeten its offer for Ameritrade, or it could make a separate bid for T.D. Waterhouse. The company may even make an offer for other industry players such as Charles Schwab.

"I think it is highly likely that there will be a pairing in the next month," said Kyle Cerminara, a financial services analyst at the mutual fund firm T. Rowe Price, whose firm owns 30.8 million shares, or almost 7.7% of Ameritrade. "Right now it is just a question of which pairing will work."

The online brokerage industry, which has seen commissions fall and trading activity soften, is ripe for consolidation.

"If E-Trade wants to stay in the consolidation it needs to respond pretty swiftly," said Richard Repetto, an analyst who covers the discount-brokerage industry for the  investment banking firm Sandler O'Neill & Partners.