Instinet's trading technology — considered the fastest and best in electronic stock trading — was a major factor in the deal, which also gives Nasdaq increased market share in its own listed stocks as well as NYSE-listed shares, and access to more trades and liquidity.

"This transaction will position us to offer investors increased choice in listed stocks on other markets as well as increased liquidity in Nasdaq-listed stocks. (Instinet) is the ideal partner for us to offer investors the best outcome for their trades," said Bob Greifeld, Nasdaq's chief executive officer, at a press conference at Nasdaq's Marketsite in Times Square.

Instinet's technology will become the predominant electronic trading platform in the U.S. equity market, and the Nasdaq will abandon its system to standardize on Instinet's platform.

Instinet's broker-dealer arm, to be run by Instinet CEO Ed Nicoll, will be sold to a private equity group, Silver Lake Partners, for $207.5 million. Another Instinet subsidiary, which manages commission rebates, will go to the Bank of New York for $174 million. The deal includes $562 million in cash that Instinet currently holds, bringing the overall value of the sale to just under $1.9 billion.

To finance the Instinet purchase, Nasdaq will take on $955 million in new debt, to be paid within six years. Nasdaq chief financial officer Dave Warren said, however, the company will save $100 million in costs over the next two to three years, and plans to pay off the debt before it comes due.

The NYSE deal and the Nasdaq purchase put the two markets — the 213-year-old icon versus the slick, computerized upstart — into a head-to-head competition that will likely result in a variety of new investment products and lower transaction fees for both institutions and individual investors. Greifeld said the NYSE-Archipelago deal was not a factor in the acquisition, which was described as a long, hard auction process.