The Securities Exchange Board of India, SEBI, has allowed Direct Market Access (DMA) for Institutional Investors. This article explains what Direct Market Access (DMA) is, and discusses its advantages.

Direct Market Access is very popular internationally, and its introduction in India is one more step towards modernization of our financial system.

What is Direct Market Access (DMA)

As the name suggests, using DMA, and entity can trade directly in an exchange - just likes brokers do. There is no need to place an order through a broker.

Advantages of Direct Market Access (DMA)

Speed

The main advantage of DMA in that it results in faster order placement and execution.

Till now, the institutions had to convey their orders to a broker, and the broker would place the orders. This means that the same information had to be conveyed twice, which resulted in delays, and, at times, errors.

Now, with Direct Market Access, the institutions would be able to place the orders directly in the market.

Cost Saving

Cutting down an intermediary would result in significant cost savings for the institutions.

Enable Algorithmic Trading

Since the institutions would be allowed to access the market directly, they can now develop and deploy computers running complex mathematical algorithms, which would place buy and sell orders automatically.

This would be a totally new avenue, and in the future, even mutual funds specializing in algorithmic trading can be introduced.

What does Direct Market Access (DMA) mean for small investors?

Allowing DMA for institutional investors is a precursor to allowing it for small investors.

The primary advantages for small investors are the same as that for institutional investors - speed and cost saving. But it is unclear how many small investors would actually end up using the facility of DMA.

The main benefit for small investors might be due to the introduction of algorithmic trading based mutual funds. This would provide a good avenue of investment for some of the more adventurous (and risk seeking!) investors among us!

Other articles you might be interested in:

• Don't blow away a windfall - Smart ways to spend your bonus and arrears
• When you aren't around - Succession Planning - Will and Nomination
• Want to own a company? Buy stock
• After e-Stocks, now its time for e-Gold - Gold ETFs
• To float or not to float, that is the question!
• Get the glitter - How to buy gold
• Budget 2008 – Impact of Income Tax Slab Changes on You
• Systematic Investment Plan (SIP) - A rupee a day, keeps worries away
• Need more reasons to start saving early?
• Cost Averaging
• Start saving early and gain from Compounding - Early bird gets the worm
• Saving enough is not enough – Effect of Inflation on Savings

Related links from the web (Sponsored):

Articles by Category:

• Gold
• Income Tax - IT
• Insurance
• Investment Philosophy and Planning
• Loans
• Mutual Funds
• News / Developments
• Others / Miscellaneous
• Real Estate
• Stocks / Shares / Equities

Note: Please treat the opinion expressed here as a broad suggestion. Please consult your financial planner / investment advisor before making any investment decision.