Nasdaq

market maker

Knight Trading Group

(NITE)

said Tuesday that it will acquire

Donaldson & Co.

, a privately held institutional broker, in a cash deal.

The financial terms of the deal weren't given. The deal is expected to close prior to Dec. 31. Shares of Knight were up 26 cents, or 1.9%, at $14.23 in recent trading.

"Knight determined it was more efficient to buy soft-dollar and commission-recapture capabilities than to continue building them from the ground up," said Thomas M. Joyce, chief executive of Jersey City, N.J.-based Knight.

Knight said that Donaldson will be operated as a separate division of Knight Equity Markets, its over-the-counter market-making subsidiary. Founder and CEO John K. Donaldson will remain a consultant. Donaldson will also keep its brand and its Atlanta headquarters, where the company's 16 employees will continue to work.

The current president of Donaldson, Joanne Mascellino, will report to James P. Smyth, head of institutional soft dollars and account origination for Knight in Jersey City. The advisers to Knight on the deal were Sandler O'Neill & Partners and Skadden, Arps, Slate, Meagher & Flom LLP.

Knight

last week raised its third-quarter earnings guidance to above analysts' consensus estimate, citing an increase in market volume and an improved institutional business.