Direct market access
Direct market access (DMA) in
History
As
The logical conclusion to this, enabling investors to work their own orders directly on the order book without recourse to market makers, was first facilitated by electronic communication networks such as Instinet. Recognising the threat to their own businesses, investment banks began acquiring these companies (e.g. the purchase of Instinet in 2007 by Nomura Holdings)[2] and developing their own DMA technologies. Most major sell-side brokers now provide DMA services to their clients alongside their traditional 'worked' orders and algorithmic trading solutions giving access to many different trading strategies.
Benefits
There are several motivations for why a trader may choose to use DMA rather than alternative forms of order placement:
- DMA usually offers lower transaction costs because only the technology is being paid for and not the usual order management and oversight responsibilities that come with an order passed to a broker for execution.
- Orders are handled directly by the originator giving them more control over the final execution and the ability to exploit liquidity and price opportunities more quickly.
- Information leakage is minimised because the trading is done anonymously using the DMA provider's identity as a cover. DMA systems are also generally shielded from other trading desks within the provider's organisation by a Chinese wall.
- Direct market access allows a user to 'Trade the Spread' of a stock. This is facilitated by the permission of entering your order onto the 'Level 2' order book, effectively negating the need to pass through a broker or dealer.
Ultra-low latency direct market access (ULLDMA)
Advanced
Sponsored access
Following the
Foreign exchange direct market access
Foreign exchange direct market access (FX DMA) refers to electronic facilities that match foreign exchange orders from individual investors, buy-side or sell-side firms with each other. FX DMA infrastructures, provided by independent FX agency desks or exchanges, consist of a front-end, API or FIX trading interfaces that disseminate order and available quantity data from all participants and enables buy-side traders, both institutions in the
Other defining criteria of FX DMA:
- Trades are matched solely on a price/time protocol. There are no re-quotes.
- Platforms display the full range (0-9) of one-tenth pip or percentage in point consistent with professional FX market quotation protocols not half-pip pricing (0 or 5).
- Anonymous platformsensure neutral prices reflecting global FX market conditions, not a dealer's knowledge or familiarity with a client's trading methods, strategies, tactics or current position(s).
- Enhanced control of trade execution by providing live, executable price and quantity data enabling a trader to see exactly at what price they can trade for the full amount of a transaction.
- Orders are facilitated by agency brokers. The broker is not a market maker or liquidity destination on the DMA platform it provides to clients.f
- Market structures show variable spreads related to interbank market conditions, including volatility, pending or recently released news, as well as market maker trading flows. By definition, FX DMA market structures cannot show fixed spreads, which are indicative of dealer platforms.
- Fees are either a fixed markup into the client's dealing price and/or a commission.
See also
- Market maker
- Direct access trading
- Straight-through processing
- Electronic communication network
References
- ^ Lemke and Lins, Soft Dollars and Other Trading Activities, §2:32 (Thomson West, 20162-2017 ed.).
- ^ "Nomura to buy Instinet". Efinancialnews.com. Retrieved 2018-06-12.
- ^ "Societe Generale Enlarges DMA & DSA Strategies". RFP Connect. April 14, 2010. Archived from the original on 2011-03-01. Retrieved 2010-07-15.
- ^ "SEC Adopts Changes to Broker-Dealer Net Capital and Financial Responsibility Rules" (PDF). Retrieved 2022-12-13.