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What is Direct Market Access (DMA)?

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.



The Securities Exchange Board of India, SEBI, has announced that it would allow Direct
Market Access (DMA) for Institutional Investors. This means that FIs and FIIs would be able
to place orders directly in the stock markets, without there being an intermediate
broker. Although the orders would still be routed through a broker’s server, the institutions
would no more be needed place the orders through a broker.

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!

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