(WASHINGTON) The Securities and Exchange Commission took a step that may halt expansion of the fastest-growing stock networks in the US with rules to improve transparency in so-called dark pools.

SEC commissioners yesterday voted to propose lowering to 0.25 per cent from 5 per cent the daily volume in a company's shares that can be executed on the systems before quotes must be made public. The changes could be adopted sometime after a 90-day public comment period.

Dark pools are off-exchange platforms that investors use to avoid revealing who they are and what they are trading.

'Although dark liquidity always has existed in one form or another in the equity markets, the commission must assure that the public markets and non-public trading venues operate within a balanced regulatory framework,' SEC chairman Mary Schapiro said at a commission meeting in Washington.

'This means that as markets evolve, the commission must continually seek to preserve the essential role of the public markets in promoting efficient price discovery and investor confidence.'

The proposal is the latest sign that the SEC is toughening oversight of strategies spurred by the growth of alternative exchanges and advances in technology. Dark pools are sometimes used by so-called high-frequency traders - brokerages that execute thousands of orders in a second to profit from tiny price gaps.

'It will initially take money out of many dark pools' pockets,' said Matthew Samelson, the Stamford, Connecticut-based founder of market research firm Woodbine Associates Inc. 'They're either going to have to adjust their pricing to be more competitive with the current displayed markets or that flow's going' elsewhere, he said.

Trading on dark pools such as Zurich-based Credit Suisse Group AG's Crossfinder and New York-based Goldman Sachs Group Inc's Sigma X - the two largest - has more than quadrupled to 9.4 per cent of all US equity volume in three years, according to Tabb Group LLC, a New York-based financial-services consultant.

Under the SEC plan, dark pools will have to publicly report quotes once they handle 0.25 per cent of a stock's daily average volume. The electronic networks usually shut down trading in a security when they approach the existing 5 per cent limit.

The agency decided against a one per cent or 2 per cent limit because that would still allow 'game playing' in which dark pools would shut down trading once they got close to the threshold, said Michael Gaw, an assistant director in the SEC's division of trading and markets. Dark pools wouldn't be able to get around a 0.25 per cent requirement, he said.

NYSE Euronext and Nasdaq OMX Group Inc, operators of the biggest US stock exchanges, may benefit from the rule change, according to Mr Samelson.

The SEC will exempt block trades, or orders exceeding US$200,000, from the new rule. - Bloomberg, AP