Direct Market Access

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Direct market access (DMA) allows buy-side traders to access liquidity pools and multiple execution venues directly, without going through a broker's trading desk. It has been adopted by institutional traders as a way of aggregating liquidity that is fragmented across execution venues on both sides of the Atlantic.

Traditional DMA provides centralized order routing where the customer inputs an order and relies on the FCM to route the order directly to the exchange of his or her choice. Pure DMA allows clients to connect directly to an exchange, circumventing the FCM community. The emergence of DMA has generated a debate among regulators about risk-management systems at both FCMs and exchanges.[1]

The key motivation for aggressive DMA trading on the buy side is cheaper commissions - DMA commissions are about one cent a share, while program trades cost roughly two cents a share and block trades cost four cents to five cents per share.

Hedge funds are among the most aggressive users of DMA. As DMA rose in popularity, consolidation hit, and the big broker-dealers acquired independent DMA vendors. In 2004, Banc of America Securities bought Direct Financial Access Corp.; BNY Brokerage bought Sonic Financial Technologies; and Citigroup acquired Lava Trading.[2]


References

  1. [ Remarks by CFTC Commissioner Jill Sommers]. CFTC.
  2. "Direct-Market-Access-Trading". Wall St. & Technology.