Thomas Peterffy, founder of online trading platform Interactive Brokers, told CNBC that the company had considered buying E-trade but decided to pass because it was a risky bet.
"We had looked at E-trade," Peterffy said Friday on "Closing Bell." "We evaluated whether we should buy them or not, and we decided against it." He said the two companies never held talks.
Morgan Stanley said Thursday it will acquire E-Trade for $13 billion, the latest in a consolidation wave for the brokerage industry that collectively lowered trading commissions to zero last year.
Morgan Stanley will pay $58.74 a share in stock for E-Trade in a deal bringing together $3.1 trillion in client assets. It's the biggest takeover by a U.S. bank since the financial crisis.
"I think it's a fair price," Peterffy said. "That's where we thought we would be if they had no other barriers in the way."
Interactive Brokers passed on the opportunity partially because it was too much of a risk, he said.
"We cannot take on existential risk, no matter how small the probability is for that risk to be realized," he said.
The acquisition, however, "cleared the field" for Interactive Brokers, he added.
The deal, which is expected to close in the fourth quarter, follows last year's $26 billion all-stock purchase of TD Ameritrade by Charles Schwab.
With fewer competitors "the distinctions among the various platforms and platform capabilities become much clearer, and the contrasts between them are much sharper," he said.
"These two firms, however, have very substantially similar customer bases, in the sense that they both cater to retail investors and registered advisors," Peterffy said. "Interactive Brokers has always traditionally catered to professional traders who work for large financial institutions and trade for their own accounts."
Peterffy said he isn't against a merger in the future.
"It would be a hard decision to sell. But at some price, we certainly would consider it," Peterffy said.
Shares of the Nasdaq-traded Interactive Brokers closed 3.4% lower Friday.
The Dow Jones Industrial Average traded 0.78% lower. The S&P 500 slid 1.05%, while the Nasdaq Composite declined by 1.79%.
— CNBC's Maggie Fitzgerald contributed to this report.