Nasdaq Grabs Instinet ECN

Updated from 1:31 p.m. EDT

The battle for stock market supremacy wore on Friday with the Nasdaq(NDAQ) announcing its long-awaited acquisition of Instinet(INGP), the grandfather of electronic trading.

The $1.89 billion cash deal, which involves several other buyers, comes just two days after the New York Stock Exchange surprised Wall Street with its acquisition of the Archipelago Exchange(AX), another leading electronic marketplace.

The deal is valued at slightly less than the $1.95 billion market cap Instinet had before the announcement. Instinent shareholders will receive $5.44 a share, roughly a 7% discount to the $5.87 a share price the stock was trading at before the 1 p.m. EDT announcement.

Shares of Instinet fell following the news. In mid-afternoon trading, the stock declined 46 cents, or 8% from the Thursday closing price, to $5.25.

But shares of the Nasdaq were up strongly, rising $3.25, or 30%, to $13.90. Shares in the electronic stock market rallied on investor hopes that the deal with Instinet will enable the Nasdaq to keep pace with the changes at the NYSE.

The Nasdaq's purchase of Instinet had been speculated about for weeks and talked about for years. In fact, many on Wall Street were expecting a deal to be announced earlier this week. Instead, the Big Board stole some of the limelight from Nasdaq with the announcement of its own surprise deal.

In the transaction, Nasdaq is buying the Instinet electronic trading platform. Instinet's institutional brokerage division is being bought by Silver Lake Partners. The Bank of New York(BK) will acquire Instinet's Lynch Jones Ryan institutional trading subsidiary.

Nasdaq's share of the transaction is the biggest at $934.5 million for the electronic trading platorm.

In doing the deal, Nasdaq hopes to increase its market share and prevent trading activity from migrating to rival electronic trading firms. About a third of the trading volume in Nasdaq stocks is processed through electronic trading platforms such as, Instinet and Archipelago.