Updated from 7:30 a.m. EST

The

National Association of Securities Dealers

rejected a recent overture by the

New York Stock Exchange

to merge, said a person close to the NASD.

The possibility of a merger was discussed and then rejected by the board of the NASD because the NASD is convinced that its plan to make its

Nasdaq

market a standalone company by selling part of it via a private placement is the best course of action.

"It would be a mistake to drop that and pursue merger negotiations which could take a long time," the person added.

And so there are no plans for a combination. "No merger negotiations are planned," said Scott Peterson, a spokesman for the NASD.

A spokesperson for the NYSE would only say, "As we have said in the past, everybody in the industry is speaking with everybody else."

A deal would certainly have been a way for the two exchanges to maintain their preeminent role in the markets and beat the challenge of the many electronic markets that are taking away business and fragmenting trading.

Top investment banks and brokerage firms -- including

Merrill Lynch

( MER),

Goldman Sachs Group

(GS) - Get Report

and

Morgan Stanley Dean Witter

( MWD) -- are worried too about the effects of the proliferation of markets and trading systems. They are advocating a plan to electronically link the various markets and centralize securities regulation.

In related news of consolidation in the electronic exchange world, it was reported that

Instinet

, a unit of

Reuters Group

( RTRSY), and

Island ECN

, which is 85% owned by

Datek Online Holdings

, were in now-aborted merger talks. Together, Instinet and Island account for two-thirds of the volume of stocks traded on electronic exchanges.

The talks were dropped because of antitrust concerns,

The Wall Street Journal

said.