Online broker E*Trade Financial Corp. (ET) said on Monday it will buy U.S. rival Harrisdirect from BMO Financial Group for $700 million in cash to strengthen its position in the consolidating online brokerage industry.

New York-based E*Trade, whose advances to another online broker Ameritrade Holding Corp. (AMTD) were rebuffed earlier this year, said it expected the deal to generate $114 million of cost cuts and $72 million from additional revenues.

E*Trade said the deal, which is expected to close by October, should boost annual earnings by 17 cents a share once Harrisdirect is fully integrated.

E*Trade shares rose 7.7 percent to $16 on the New York Stock Exchange (search).

The deal comes after Ameritrade in June agreed to acquire rival TD Waterhouse USA of Canada's Toronto-Dominion Bank.

E*Trade said acquiring Harrisdirect would bring it about 430,000 active high-value customer accounts with an average account balance of over $70,000, and about $32 billion in assets under administration.

This will mean E*Trade in total has over 4 million customer accounts, about $130 billion in customer assets and about 130,000 daily average revenue trades.

The BMO group said it decided to sell Harrisdirect as an additional amount of capital would have been needed to enlarge the business and keep it competitive in the changing landscape and current environment of consolidation.

"We concluded that Harrisdirect would be more valuable to another participant in the online brokerage industry," said Chief Executive Tony Comper in a statement.

He said BMO expects to recognize a "modest" gain from the transaction, which will depend on a number of adjustments that are expected to be made final on closing.

BMO said it would redeploy capital to higher-return businesses and concentrate on its goal of becoming the leading personal and commercial bank in the U.S. Midwest.