London - A curb on "dark" or off-exchange trading of shares in the European Union should be completely removed to compete better with Britain, EU documents seen by Reuters showed on Friday.

The documents set out the latest compromises among EU states on reforming the bloc's "MiFID" securities law to catch up with advances in trading technology and practices in markets.

The documents also include an informal German proposal to scrap the European Commission's proposed ban on payment-for-order flow, or when brokers get commission for directing stock orders to a specific trading platform.

Dark trading has long been divisive in the EU, pitting banks and big investors, who favour this anonymous form of trading, against exchanges who say it damages prices on their "lit" platforms, which display prices at which market participants are willing to trade.

Dark trading currently is subject to two types of caps on volumes, and the European Commission has proposed removing one of them.

EU states and the European Parliament have the final say on the proposed MiFID reform, with negotiations due to continue over coming months before a final deal emerges.

The Czech Presidency of the EU is proposing the complete removal of the double volume cap, EU documents for meetings next week show.

"This will allow for a dynamic and nimble approach, allowing price formation, sufficient transparency and leeway to react to situations within the EU (or in the UK)," the documents said.

Britain, now outside the EU, has said it will also remove the double volume cap inherited from the bloc as it seeks to boost dark trading to attract more international investors to trade in London's financial centre, now largely cut off from the EU.

'LEAST AMBITIOUS'

Exchanges are also lobbying hard to water down commission proposals for a near real-time feed of share transactions to give investors a market-wide snapshot of prices.

The Presidency backs setting up the so-called consolidated tape, but documents show tough haggling has taken place, referring only to completed trades and ditching the mention of also including prices of proposed trades.

"The Presidency would like to take this opportunity to reiterate one last time that this version of the shares CT is likely the least ambitious and the least attractive one, which may still remain a viable product," EU documents said.

The Presidency also proposes to clarify that a 30 billion euro threshold for forcing investment firms in the EU to apply for a banking licence refers to assets inside the bloc, the documents showed.

(Reporting by Huw Jones; Editing by Paul Simao)