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U.S. securities watchdog to monitor off-exchange stock trading

By John McCrank

NEW YORK, Jan 31 (Reuters) - An industry-funded watchdog for the U.S. securities industry will begin monitoring stock transactions in off-exchange trading venues in a bid to increase transparency in the markets.

The Financial Industry Regulatory Authority (FINRA) was granted approval last week from the U.S. Securities and Exchange Commission to obtain information on "dark pools," which are private trading venues, and other alternative trading systems (ATSs), according to a regulatory filing.

Around 40 percent of U.S. stock trading activity occurs away from the 13 public securities exchanges, on around 45 ATSs.

The SEC approved rules that would require the systems to report total trading volume, by security, to FINRA, which will then post that information on its website.

Currently, there is no public dissemination of such data.

FINRA also plans to require each ATS to use a unique identifier when it reports order or trade information, the watchdog said. FINRA said it will use the information to help monitor ATSs to determine whether they are complying with regulations.

In March, FINRA Chief Executive Rick Ketchum said that "dark pools" have raised significant concerns among investors who are trying to understand them better and the trading that occurs on them.

The following month, the chief executives of three U.S. exchanges met with SEC officials in Washington to express concerns about increased trading taking place away from public markets. The exchanges have long argued that the rise of off-exchange trading distorts prices in the public market and contributes to less transparent trading activity.