What happened

Shares of E*Trade Financial (NASDAQ:ETFC) fell 9.3% on Thursday, a day dominated by headlines about potential consolidation in the discount-brokerage sector. Unfortunately for E*Trade, it was not the target involved in the acquisition rumor, leading to fears that the company could be left behind if its rivals team up.

So what

E*Trade investors ran for the exits on Thursday on reports that Charles Schwab (NYSE:SCHW) and TD Ameritrade Holdings (NASDAQ:AMTD) are in talks to combine. A deal would create a brokerage powerhouse with $5 trillion in combined assets and continue a trend of industry consolidation that's been led by TD Ameritrade and E*Trade.

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Image source: Getty Images.

Analysts have long expected additional dealmaking in the sector, and many had predicted an eventual tie-up between E*Trade and Ameritrade. A Schwab/Ameritrade deal would cost E*Trade two potential partners and put it at a competitive disadvantage if it remains on its own.

Now what

A Schwab/Ameritrade deal would be a temporary setback for E*Trade, but the company has plenty of other options. Companies including Interactive Brokers remain independent and would be a potential partner, and Fox Business' Charles Gasparino tweeted on Thursday afternoon that Goldman Sachs could be interested in buying E*Trade or a large retail bank to expand its presence in consumer banking.

E*Trade on its own still has a lot going for it, as well. Last month, UBS upgraded the company based on the strength of its "leading corporate services offering and active trader platform." Not all is lost for E*Trade, but if Schwab and Ameritrade do end up merging, the challenge it faces is about to get a lot more difficult.