The electronic trading firm has been approached by rivals Getco LLC and Virtu Financial LLC about its market-making operation, which uses computer models to match buy and sell orders in stocks and options, executing around 10 percent of U.S. volume, according to people familiar with the talks.

"To that end, our board of directors and management team regularly consider opportunities that are potentially strategic or collaborative in nature to enhance shareholder value and improve our offering to clients," Knight CEO Tom Joyce said in a note to employees on Saturday, seen by Reuters. The talks were first reported by the Wall Street Journal.

Knight was forced to take on new investors following a software glitch on August 1 that unleashed a flood of orders to the New York Stock Exchange, resulting in a massive position Knight had to unload at a loss, nearly bankrupting the firm.

In October, Knight posted a third-quarter loss of $389.9 million. But Joyce said the company was better capitalized than it was before the glitch - a point he reiterated in the memo to employees.

"Given our recapitalization, rapid client re-engagement and rebound in trade volumes, there is no need for Knight to pursue a partnership, transaction or any other undertaking," he said. "We would only move forward with such an initiative if it makes strategic sense for our shareholders and our business."

Getco and Virtu spokespeople have declined comment on the reports.

Getco was one of the firms involved in the $400 million rescue of Knight in August, led by Jefferies Group (JEF.N). Others included Blackstone Group LP (BX.N), Stephens Inc, and financial services companies TD Ameritrade Holding Corp (AMTD.N) and Stifel Financial (SF.N).

As part of the deal, Getco investor General Atlantic, as well as Blackstone and TD Ameritrade, were given seats on Knight's board.

Aside from being a top U.S. market maker, Knight runs bond and foreign exchange trading platforms and owns a reverse mortgage lender. It also holds a stake of about 20 percent in Direct Edge, the No. 4 U.S. cash equities exchange.

(Reporting By John McCrank; Editing by Theodore d'Afflisio)

• A Permanent Economic Emergency