NEW YORK: Bankers Trust New York will merge with Alex. Brown & Sons in a $1.7 billion deal that is the biggest acquisition yet of a securities firm by a bank. The move is the most dramatic challenge yet to Glass-Seagull, a creaky piece of Depression-era legislation that prohibited banks from underwriting stocks in order to prevent potential conflicts of interest. Federal regulators have since 1989 allowed banks to conduct stock trades as long as the deals came to less than 10 percent of total revenues. After the feds raised that cap to 25 percent late last year, banks began casting about for brokerage firms that might make a good fit. Analysts say Bankers Trust, which handles mostly corporate and institutional clients, should come out of the merger as a major player in the securities industry. The deal gives the bank a securities underwriting business, ranked sixth in the nation last year, that has already taken public such high-profile firms as America Online, Microsoft Corp. and Sun Microsystems. News of the deal sent Alex. Brown stock soaring up 10 3/4 points to $63.78 — just under the firm's 1997 high of $64. Shares of other mid-size brokerages also rose on speculation that other banks are gearing up to buy a firm of their own.