"The Knicks and Rockets are in the final stages of negotiating a blockbuster trade that would send Tracy McGrady to New York, with the Bulls still in the game based on the final issue of draft-pick compensation, CBSSports.com has learned.

The Knicks would get McGrady in exchange for Jared Jeffries, Larry Hughes, Jordan Hill and draft pick considerations. The deal hinges on the level of protection the Knicks will require on a 2012 first-round pick that would go to the Rockets in the trade. The deal also would give Houston the right to swap first-round picks with the Knicks in 2011.

Knicks president Donnie Walsh is discussing the draft-pick protection issue with Madison Square Garden chairman James Dolan, and once the Rockets receive word on their decision, they will choose between offers from the Knicks and Bulls, a person with knowledge of the negotiations said.

The situation was developing quickly Tuesday night, as another person directly involved in the negotiations predicted only hours earlier that Houston's decision would go "down to the wire" between the Knicks and Bulls. A third person with knowledge of the talks cautioned that the situation was still evolving, partially because the Bulls had multiple avenues to pursue in trying to enhance their offer.

The framework of the Bulls' offer is believed to include Brad Miller, Tyrus Thomas, and either Kirk Hinrich or John Salmons -- a combination reported Tuesday night by the Chicago Tribune. If Hinrich were involved, the deal would likely have another player going to Chicago with McGrady. The Bulls do not have any extra first-round picks, and thus might be compelled to seek out a third team to sweeten their offer. Minnesota and Memphis are among the teams with extra first-round picks to offer in a three-team scenario."