* Firms confirm exclusive talks
* Merged group would be in line with LSE by market share
(Adds detail on deal, background)
By Luke Jeffs
LONDON, Dec 23 (Reuters) - Bats Europe's bid for rival Chi-X Europe marks a period of consolidation among the new breed of exchanges, weakened by a fight over market share with traditional bourses.
Chi-X Europe and U.S. exchange Bats Global Markets, which owns Bats Europe, said they had "entered exclusive negotiations regarding the sale of Chi-X Europe".
They did not provide any detail such as on price.
The deal would create one of the largest European share trading firms, with a combined market share of about 22 percent, putting it on par with the London Stock Exchange which has about 23 percent across its various units.
While a raft of upstart trading platforms has rapidly won market share from incumbent stock exchanges since the European Union introduced MiFID laws to enhance competition in 2007, they have struggled to make money.
European equity trading levels have been lower than expected since the financial crisis and the largest brokerage firms have been saying for a year that the new sector -- which offers lower fees and faster trading -- was set for a shake-out.
The LSE this year bought an alternative trading platform called Turquoise, while Nasdaq OMX closed its pan-European trading platform Neuro in April citing the "increasingly competitive nature" of the business.
Separately, the EU is planning an overhaul of the MiFID rules that could further unsettle an already rapidly changing sector and offer European stock exchanges a lifeline as the focus shifts towards stability after the financial crisis.
News of exclusive talks between the rival exchanges came four months after Chi-X Europe sent sales prospectuses to prospective bidders following an initial approach by Bats Europe in August.
Bats, Nasdaq OMX, NYSE Euronext and U.S. trading firm Direct Edge, which lists Deutsche Boerse as a shareholder, all looked at a deal, two sources close to the talks said. But the choice came down to Bats and Nasdaq.
The sale of Chi-X Europe to Bats is attractive to shareholders because the two firms are owned by many of the same investment banks who will now consolidate their holdings.
Non-owner banks and brokers are also largely supportive, because the combination of the two platforms will create a larger group that should be able to more readily withstand possible hostile advances from its exchange rivals. (Editing by Dan Lalor)