A wave of corporate mergers keeps generating fat fees for investment bankers. Ironically, the brokerage sector has been only a modest player on the merger front.

But that state of affairs may begin to change in the coming months, as midsized brokerages start to draw attention from larger investment firms, similar-sized brokers and foreign banks.

"We know the economics of these consolidations work,'' says Brad Hintz, a brokerage analyst with Bernstein & Co. "A large retail operation generates higher margins than a medium-sized one.''

Some midsized brokers that could be ripe for a merger or acquisition include

Oppenheimer & Co.

,

RBC Dain Rauscher

,

AG Edwards

( AGE) and

Raymond James

(RJF) - Get Report

.

Acquiring a midsize brokerage presents an attractive entry point into the U.S. market for foreign banks. For instance,

Royal Bank of Canada

(RY) - Get Report

, Dain Rauscher's parent, has made no secret of its desire to expand its U.S. brokerage operations, say Wall Street analysts and traders.

One thing that's been holding these deals back is the big run-up in the stock prices of many small and larger brokerage firms. Over the past year, the Amex Broker/Dealer Index is up 78%. Every few days, the index seems to trade at a new all-time high.

Some on Wall Street say a pause in the surge in brokerage stocks -- even a modest decline -- might not be so bad, as it would make all-stock acquisitions more attractive.

Indeed, there are signs that some brokers are beginning to shop around.

Over the past several months, Oppenheimer has received preliminary inquiries from at least two similarly sized brokerages about the possibility of a merger, say people familiar with Oppenheimer. Traders say speculation about a potential deal is one reason shares of Oppenheimer have surged 30%, or $6, to $26.47 in the past six weeks.

The two brokerages that have approached Oppenheimer about a possible deal, sources say, are

Friedman Billings Ramsey

and Dain Rauscher. A Dain Rauscher spokeswoman declined to comment. An FBR spokeswoman didn't return a phone call.

For now, it appears nothing is imminent. In fact, it's far from clear that Oppenheimer, which is based in Toronto but headquartered in New York, is interested in a deal.

Elaine Roberts, Oppenheimer's president, says she's "not aware of any conversations.''

Albert "Bud" Lowenthal, the firm's chairman and CEO, also denied that there have been any talks with would-be suitors.

Lowenthal, who has a 22% economic interest in Oppenheimer and controls 51% of its voting stock, says the brokerage is not for sale. Officials with Private Capital Management, a Florida money management firm that controls 25% of Oppenheimer's free-trading shares, declined to comment.

Still, the deal speculation has been good for Lowenthal and Private Capital. The flurry of activity in Oppenheimer shares, a normally thinly traded stock with just 13 million shares of nonvoting shares outstanding, comes after a yearlong stretch in which the stock has languished at around $20.

Of course, not all brokerage acquisitions are a success, and that's another thing keeping some Wall Street executives from going forward.

Last fall,

Merrill Lynch

( MER) paid $400 million to buy Advest Group from

Axa Financial

( AXA) for $400 million. Since the deal closed, however, dozens of Advest's 500 brokers have left for other firms.

"The $64,000 question is: What am I buying if all these brokers walk out the door?'' says Hintz, whose firm, Bernstein & Co., is a division of Axa Financial.

Indeed, Oppenheimer had to deal with a wave of broker defections not too long ago after the

Canadian Imperial Bank of Commerce

(BCM) - Get Report

sold the brokerage to Fahnestock Viner. Soon after that deal was completed in early 2003, dozens of top brokers at Oppenheimer left the firm.

Fahnestock took on the Oppenheimer name in the deal, which valued the brokerage at $257 million. In the transaction, Fahnestock paid $15 million cash to CIBC and funded the rest with debt. In the transaction, CIBC took on a series of convertible notes that can be turned into Oppenheimer shares as early as next year. If the notes fully convert, CIBC could get a 35% equity stake in the brokerage.

Oppenheimer is not affiliated with the mutual fund company OppenheimerFunds.

People familiar with Oppenheimer say the potential conversion of the notes is one reason Lowenthal might look to sell the business now. They also note that with a current market cap of $336 million, Oppenheimer is valued at a 31% premium to the price Fahnestock paid for the firm.

Another reason a sale might be in order is it would be a way for Lowenthal to get out from under some of the regulatory troubles both he and the firm are in.

In January, the

NASD

charged Oppenheimer and Lowenthal for failing to cooperate with an investigation into the firm's policy on awarding volume markdowns to customers who buy certain mutual fund products -- known in the industry as "break-point discounts."

Last year, the NASD charged the firm with failing to cooperate with another investigation, this one municipal bond trades.

Another unresolved regulatory matter hovering over Oppenheimer is the nearly three-year-old mutual fund trading scandal. Two executives at the firm are facing potential regulatory action by the

Securities and Exchange Commission

for allegedly permitting a group of brokers to engage in abusive mutual fund trading. Oppenheimer was the home base of operations for Michael Sassano, who once was one of the top market-timing brokers on Wall Street.