Fault identification and localization problems in optical networks have become crucial. Due to network transparency and high data rates, optical networks are vulnerable to sophisticated attacks on the physical infrastructure [5], and hence require adequate fault monitoring in order to accurately identify and locate network failures. In transparent optical networks, faults may propagate to various parts of the network from the origin, and multiple alarms can be generated for a single failure. In order to reduce the number of redundant alarms, simplify fault localization, as well as lower financial investment in network monitoring equipment, fault monitor placement should be optimized for a given network. In this paper, we formulate a problem on the optimal placement of network monitoring devices and propose a solution approach. First we provide a brief summary of available physical-layer monitoring devices, after which we present a scheme for optimal monitor placement.