Updated from 11:57 a.m. EDT

Shares of market maker

Knight Trading

(NITE)

recovered much of the ground they lost in the premarket session once trading resumed Monday.

After plunging below a dollar on heavy volume in the premarket session, Knight's shares were lately trading at $5.97, down 6% from Friday's closing price of $6.35. The company said the erratic activity in its shares before the open was caused by a software glitch in its trading system.

Traders and analysts initially attributed the premarket decline to rumors that the company was being investigated by the

Securities and Exchange Commission

. In a press release, Knight said the problem generated a large series of sell limit orders in its own stock, which were routed to various destinations and disrupted trading in the security.

"This was isolated to Knight's stock and had no bearing on client business," the company said. "Knight is operating under normal operating conditions, without interruptions. We are working with various execution centers to correct these erroneous orders in Knight's stock."

Knight doesn't make a market in its own stock. The company also said its "strategy is sound, our balance sheet is strong, and we're looking forward to building the business going forward."

According to Putnam Lovell analyst Richard Repetto, Knight traded 2.8 million shares at an average price of $1.86 before the stock was halted. The

Nasdaq Stock Market

plans to cancel all trades in Knight shares that were executed from 8:23 a.m. EDT to 8:48 a.m. EDT. "This is consistent with actions taken by other exchanges," the Nasdaq said.

Knight's board

recently named Thomas Joyce its new president and chief executive, a position it had been trying to fill for months. The company has been hurt by new trading rules that reduce the spreads the company earns on trades and by a sluggish market. As a result, Knight has been plagued by plunging profits and a slew of executive departures. Last month, the company said it planned to slash $30 million in costs by the third quarter.