Direct market access

Direct market access

Direct market access (DMA) is a term used in financial markets to describe electronic trading facilities that give investors wishing to trade in financial instruments a way to interact with the order book of an exchange. Normally, trading on the order book is restricted to broker-dealers and market making firms that are members of the exchange. Using DMA, investment companies (also known as buy side firms) and other private traders utilise the information technology infrastructure of sell side firms such as investment banks and the market access that those firms have, but control the way a trading transaction is managed themselves rather than passing the order over to the broker's own in-house traders for execution. Today, DMA is often combined with algorithmic trading giving access to many different trading strategies.

Contents

History

As financial markets moved on from traditional open outcry trading on exchange trading floors towards decentralised electronic, screen-based trading and information technology improved, the opportunity for investors and other buy side traders to trade for themselves rather than handing orders over to brokers for execution began to emerge. The implementation of the FIX protocol gave market participants the ability to route orders electronically to execution desks. Advances in the technology enabled more detailed instructions to be submitted electronically with the underlying order.

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)[1] 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 chose 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 trading platforms and market gateways are essential to the practice of high-frequency trading. Order flow can be routed directly to the line handler where it undergoes a strict set of Risk Filters before hitting the execution venue(s). The race for ultra-low latency direct market access is a hot topic amongst high frequency traders, Brokers and technology vendors such as Ullink or Fidessa. Typically, ULLDMA systems built specifically for HFT can currently handle high amounts of volume and incur no delay greater than 500 microseconds. One area in which low-latency systems can contribute to best execution is with functionality such as direct strategy access (DSA) [2] and Smart Order Router.

Foreign exchange direct market access

Foreign exchange direct market access (FX DMA) refers to electronic facilities that match foreign exchange orders from individual investors and buy-side firms with bank market maker prices. FX DMA infrastructures consist of a front-end, API or FIX trading interfaces that disseminate price and available quantity data from multiple bank contributors and enables buy-side traders, both institutions in the interbank market and individuals trading retail forex, to trade in a transparent, low latency environment.

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 platforms ensure 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.
  • 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.
  • Platforms build a fixed mark up into the client’s dealing price and/or charge a commission.

See also

External references

  1. ^ http://www.efinancialnews.com/story/2006-11-02/nomura-to-buy-instinet
  2. ^ DSA; Direct strategy Access, DMA using Algo or other Program trading http://www.rfpconnect.com/news/2010/4/14/societe-generale-enlarges-dma-dsa-strategies

Algorithmic Trading and DMA: An introduction to direct access trading strategies, Barry Johnson, 4Myeloma Press, February 2010.


Wikimedia Foundation. 2010.

Игры ⚽ Поможем написать реферат

Look at other dictionaries:

  • Direct Market Access — (DMA) refers to electronic facilities that allow buy side firms to more directly access liquidity for financial securities they may wish to buy or sell. Using DMA, the firms still use the infrastructure of sell side firms but take over more of… …   Wikipedia

  • Direct Market Access — Als Direct Market Access (DMA) werden Systeme bezeichnet, die Broker oder Wertpapierhandelsunternehmen (Sell Side Firmen) direkt mit den wichtigsten Wertpapiermärkten verbinden. Endkunden oder sogenannte Buy Side Firmen erlangen über eine Sell… …   Deutsch Wikipedia

  • Direct Market Access - DMA — This refers to electronic facilities, often supplied by independent firms, that allow buy side firms to access liquidity for securities they may wish to buy or sell. Buy side firms are customers of sell side firms brokerages and banks which may… …   Investment dictionary

  • Direct access trading — is a technology which allows stock traders to trade directly with market makers or specialists, rather than trading through stock brokers.[1] Direct access trading systems use front end trading software and high speed computer links to stock… …   Wikipedia

  • Market Maker — Un market maker, ou « teneur de marché », est une entreprise, généralement une banque d investissement, ou une personne qui, sur un marché donné, fournit constamment : soit uniquement à sa clientèle, soit, dans certains cas, à l… …   Wikipédia en Français

  • Market maker — Un market maker, ou « teneur de marché », est une entreprise, généralement une banque d investissement, ou une personne qui, sur un marché donné, fournit constamment : soit uniquement à sa clientèle, soit, dans certains cas, à l… …   Wikipédia en Français

  • Market gardening — Market garden redirects here. For the World War II operation, see Operation Market Garden. In agriculture, market gardening is the relatively small scale production of fruits, vegetables and flowers as cash crops, frequently sold directly to… …   Wikipedia

  • Access management — Access management, When used in traffic and traffic engineering circles, generally refers to the regulation of interchanges, intersections, driveways and median openings to a roadway. Its objectives are to enable access to land uses while… …   Wikipedia

  • Market garden — A market garden on an outlying island of Hong Kong For the Second World War Allied military action, see Operation Market Garden. A market garden is the relatively small scale production of fruits, vegetables and flowers as cash crops, frequently… …   Wikipedia

  • access — ▪ I. access ac‧cess 1 [ˈækses] noun [uncountable] 1. MARKETING the right to sell goods to a particular market or country without breaking any laws or agreements: access to • Japan agreed to allow foreign manufacturers of satellite equipment equal …   Financial and business terms

Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”