FACTBOX-Battle to shape review of EU markets rules

Feb 1 (Reuters) - The European Union is reviewing rules that form the cornerstone of its securities trading infrastructure.

The Markets in Financial Instruments Directive (MiFID) was introduced in November 2007 and has spawned new share trading venues to increase choice and cheaper fees for investors.

There have also been unintended consequences such as the fragmentation of share price data and liquidity. A new breed of "dark pools" has also emerged with the ability to skirt some of the heavier MiFID transparency rules.

Exchanges want a crackdown on what they see as unfair commercial advantages MiFID has created for banks and new trading venues.

The review was long-planned but is also an opportunity to apply lessons from the financial crisis and pledges made by the G20 group of leading countries to shine a light on all parts of the financial system.

The EU's executive European Commission is expected to make recommendations for what is already dubbed "MiFID II" before the end of 2010. New legislation may be needed to implement some of the changes.

The following is a list of key aspects under review.

TRANSPARENCY

Exchanges want rival trading pools such as multilateral trading facilities (MTFs), share crossing networks inside banks and "dark pools" or anonymous trading venues to abide by stricter rules on transparency. Banks say exchanges overstate the size and influence of off exchange trading and that tougher transparency rules could be damaging.

Tougher transparency rules could be extended to share dealings between banks, known as the over-the-counter market (OTC). Waivers from transparency and pre- and post-trading reporting rules enjoyed by some market participants will be reviewed and harder to justify in future.

FRAGMENTATION

MiFID scrapped the so-called concentration rule enforced in France, Italy and Spain whereby share orders must go through the local exchange. The emergence of many venues trading the same shares has fragmented liquidity and share price data, making it harder for investors to be sure they are getting the best deal.

Fragmentation has raised questions in France and elsewhere on the wisdom of scrapping the concentration rule but few believe a return to the pre-MiFID status quo. Instead, the review may result in regulatory intervention to establish a "consolidated tape" for share prices like in the United States.

BEST EXECUTION

Brokers can state which trading venues they will use, which can be few or many. Some trading platforms want MiFID changed so that brokers are obliged to hook up to all trading venues, a step seen as lessening the central role of the long established stock exchanges. The definition of what is best execution may well be tightened.

COMMODITIES

A huge boom in commodities markets has drawn the attention of regulators and accusations of speculation. Specialist commodities dealers were exempted from some of MiFID's transparency rules as they have little retail exposure. Those exemptions will be reviewed.

BOND AND FOREIGN EXCHANGE MARKETS

Bond markets may end up having to be more transparent. The industry and the European Commission struck a deal on bond market transparency in retail trades but in view of the financial crisis, the EU executive may feel something more formal and broader in scope may be needed akin to transparency rules in trading shares.

Some dealers say there is pressure to bring foreign exchange trading under MiFID's scope as well.

CLEARING

It's unclear to what extent the regulatory push to clear more OTC derivatives trades will be reflected in the MiFID review or whether clearing will be addressed in a planned new directive on market infrastructure due to be unveiled by July. MiFID could be used to deal with transparency and "passporting" issues for clearers.

(Reporting by Huw Jones, editing by Patrick Graham)