NEW YORK (Dow Jones) - Several Wall Street firms bought stakes in the Philadelphia Stock Exchange Tuesday, the latest sign that the industry is looking to expand its trading options as the two major stock-trading venues seek to expand their market shares.

The Philadelphia Exchange said Tuesday that Citigroup, CS First Boston, Morgan Stanley and UBS took stakes worth a total of about $19 million in the regional exchange.

Morgan Stanley (MWD) took the largest piece of the Philly Exchange with a 10% stake, valued at $7.5 million . The investment bank will also receive a warrant allowing it to increase its stake to 19.9%.

Citigroup (C), CS First Boston (CSR) and UBS (UBS) will each invest $3.75 million for 5% each, including a warrant to increase their stakes to 9.9%.

The moves come after similar investments from Citadel and Merrill Lynch (MER) on June 16 .

"The big brokerage firms may not trust the New York Stock Exchange," said San Francisco-based hedge-fund manager James Ellman .

"They may be buying into these new businesses to protect themselves against too much dominant market power from the New York Stock Exchange organization after the merger with Archipelago," added Ellman, whose firm is called Seacliff Capital.

This April, in the most sweeping change in its 212-year history, the New York Stock Exchange announced plans to merge with electronic rival Archipelago and become a public company. The move came amid a rapidly changing landscape for stock trading in the U.S. financial markets.

Days later, the Nasdaq Stock Market Inc. (NDAQ) announced the widely expected cash deal to buy Instinet Group for $1.88 billion .

So-called ECNs such as ArcaEx, Instinet and even the Nasdaq have fiercely battled to divvy up the trading-volume pie.

Firms like those that made the investment in the Philadelphia Exchange Tuesday have expressed concerns that the consolidation of the NYSE and Archipelago, along with the marriage of Instinet and Nasdaq, may drive up the cost of trading due to less competition.

That, combined with pressure on commissions, is driving firms to seek alternate trading venues, according to Ellman.

"The pricing pressure on commissions [is] likely to continue. Most institutions are able to trade for less than a penny a share at this point with discount brokerage or nonresearch-providing brokerage firms, and that puts pressure on brokerage firms that don't have particularly strong research capabilities to continue to charge more than one penny a share," he said.

If the recent buyers fully exercise their warrants, the six would own 89.4% of the Philadelphia Stock Exchange common stock.

"These alliances will help us become a strong new competitive force in the rapidly consolidating securities-exchange marketplace," said Philadelphia Exchange Chief Executive Meyer Frucher in a statement Tuesday afternoon.

"Our long-term objective -- to offer multiple product classes traded in one venue, at a competitive cost -- will ensure that the investing public is not captive to the forces of market-center convergence," he added.

The Philadelphia exchange also said it plans to make a buyback offer to its existing stockholders for up to 16,700 shares at $900 each.

It expects to make the offer in September and keep it open for 20 business days.

(END) Dow Jones Newswires

08-16-05 1704ET Copyright (c) 2005 Dow Jones & Company, Inc. Copyright (C) 2005 Dow Jones & Company, Inc. All Rights Reserved.