By late Monday, Knight had not reached a decision on which offer to accept, as it weighed different structures of the bids as well as the motivations of some of its own investors, according to one of the sources. Still, a deal of some kind for the electronic trading firm was increasingly looking more likely than not, the source added.

Getco recently increased the amount of cash to its cash-and-stock offer for Knight, which executes around 10 percent of U.S. equity trading volume, valuing it around $1.8 billion, while Virtu boosted its all-cash bid to $3.20 a share, or around $1.6 billion, the source said.

Chicago-based Getco's deal would see it merge into Knight to create a new publicly traded company, whereas Virtu would take Knight private.

Jefferies Group Inc (JEF.N), which helped lead a rescue of Knight earlier this summer and became a major investor, is helping to finance Getco's bid, leading some at Knight to question whether it was merely looking to take profits from the investment, the source said. Jefferies was also instrumental in bringing Getco into the investor group at the time, the source said.

A spokesman for Jefferies had no comment.

Knight is also debating whether closely held Getco was looking at the deal as a way to find a stronger partner, as Getco's profits are down around 60 percent this year, the source said.

Virtu has lined up financing for its bid and is backed by private equity firm Silver Lake, a Virtu investor, separate sources said.

A Getco spokeswoman was not immediately available for comment. A Knight spokeswoman and a Virtu spokesman declined to comment.

MARKET-MAKING BUSINESS EYED

The discussions around Knight come as both Getco and Virtu eye its U.S. market-making business, which uses computer models to match buy and sell orders in stocks and options. The business, one of the largest in the country, has remained profitable despite a market-wide trading slump.

Getco and Virtu have market-making units that compete against Knight.

Knight also runs bond and foreign exchange trading platforms, and owns a reverse mortgage lender as well as a stake of about 20 percent in Direct Edge, the No. 4 U.S. cash equities exchange.

The Jersey City-based firm, however, became vulnerable to a takeover this summer when a software glitch left it nearly bankrupt, leading a group of investors to step in with $400 million in emergency capital.

The rescue deal was led by Jefferies and included Getco, as well as Blackstone Group LP (BX.N), TD Ameritrade Holding Corp (AMTD.N), Stifel Financial (SF.N), and Stephens Inc.

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

The latest discussions started after Getco made an unsolicited bid late last month for Knight, which was followed by Virtu's bid, which was also unsolicited.

(Reporting By John McCrank and Jessica Toonkel; Editing by Muralikumar Anantharaman)

• A Permanent Economic Emergency