Time for an E*TRADE Buyout?

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Shares of E*TRADE (Nasdaq: ETFC  ) jumped sharply higher yesterday before moderating, and it wasn't because golden nuggets were discovered during an E*TRADE baby diaper change or Lindsay Lohan became a Facebook fan of the discount broker.

No, acquisition chatter drove the quick spike.

Is it justified? Well, you be the judge.

"There are lots of potential acquisitions and we've got a lot of firepower," TD AMERITRADE (Nasdaq: AMTD  ) CEO Fred Tomczyk said in an interview with Reuters yesterday.

There are many possible purchases in this fragmented sector for TD AMERITRADE, but E*TRADE is the most eligible bachelor.

It probably also isn't hurting that Charles Schwab (Nasdaq: SCHW  ) posted a 45% decline in its latest quarter's profits yesterday morning, fueling speculation that the industry needs more than an organic push to thrive in this environment.

The year did start off with a bang. Daily average revenue trades (the number of trades each day that a broker charges for) were up for January compared with December: 21% for E*TRADE, 22% for TD AMERITRADE, 23% for Schwab, and 24% for Interactive Brokers (Nasdaq: IBKR  ) . Fortunes reversed a month later.

The fickle nature of trading activity has been dizzying for analysts. Goldman Sachs went from cold to hot on the sector, changing its mind on some of the individual brokers -- including TradeStation (Nasdaq: TRAD  ) and optionsXpress (Nasdaq: OXPS  ) -- that it had talked down in December.

Will Tomczyk be turning his attention to TradeStation, optionsXpress, or any of the remaining smaller discounters before sizing up E*TRADE? It's possible, but E*TRADE is the discounter that seems to be at the center of all sector consolidation chatter. Taking a long time to tap a new CEO -- which it finally did last month -- isn't going to bring any silence.

Your days of independence appear to be numbered, E*TRADE.

In the market for a new discount broker? The way that rates and initial deposits are bouncing around, I can't say that I blame you. Check the sponsored broker comparison table in the Discount Broker Center to see if you can find the bargain-minded brokerage outfit that's right for you.

optionsXpress, Interactive Brokers, and Charles Schwab are Motley Fool Stock Advisor selections. Try any of our Foolish newsletter services free for 30 days. It's more than a fair trade.

Longtime Fool contributor Rick Munarriz believes in self-service gasoline pumps and self-service stock brokerages. He does not own shares in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.

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