What happened

Shares of TD Ameritrade Holding (NASDAQ:AMTD) jumped more than 17% on Thursday morning following reports that the company is in talks to be acquired by Charles Schwab (NYSE:SCHW). A deal would continue the rapid-fire pace of consolidation among online brokerages as competition has eaten into profitability.

So what

TD Ameritrade shares were down more than 30% year to date prior to Thursday's jump, with investors worried that intense competition among discount brokerages would curtail profitability. Last month, Charles Schwab turned up the heat on the competition when it announced no-fee trading, sending shares of rivals, including TD Ameritrade, plunging.

Stock chart lines trending upward.

Image source: Getty Images.

Now Charles Schwab appears prepared to take advantage of that price decline. CNBC.com reported Thursday that Charles Schwab is in talks to acquire TD Ameritrade in a deal that would create a brokerage powerhouse with $5 trillion in combined assets.

A deal could reportedly be announced as soon as Thursday and would be subject to regulatory approval. The companies are reportedly pursuing consolidation as a response to new competitors entering the industry, including start-up Robinhood as well as fee-free products from J.P. Morgan Chase and other large financial institutions.

Now what

Terms of the proposed deal are unknown, but most published reports have Schwab paying about $25 billion for TD Ameritrade. The company's market capitalization has surged to about that as a result of the reports, meaning there could be very little additional upside to buying in now. There is risk, as the talks could break down or regulators could get in the way of the proposed transaction.

The potential of a Schwab/TD Ameritrade deal would impact a large number of individual investors and is worth watching. But there is little reason to buy in right now following the surge.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.