dma

Updated on Dec 18th, 2023

Meaning of DMA

DMA refers to the access to electronic facilities and order books that facilitate security transactions on a daily basis.
It is maintained by the financial market exchanges such as NYSE, NASDAQ, LSE etc.
Usually, individual investors do not have direct access and require an intermediary brokerage form for trade execution. These investment banks, in turn use sophisticated electronic trading technology that allows them to have DMA.
Broker-dealers, sell-side investment firms and market-making firms have DMA.
Historically this was a paid-for service operated by banks and brokers, with expertise, to their customers. Now, even independent parties provide these specialized services on behalf of banks and brokers to the investors and this is known as Sponsored Market Access or SMA.

The trader is to place an order for the security over an online trading platform.
The order is recorded in an electronic trading book and the information is communicated to the exchange servers electronically.
The order so received is fulfilled once the trader's purchase price matches the seller’s price quote.

There is full transparency of the exchange’s trade orders.
DMA platforms, once integrated with algorithmic trading strategies can make the process of trading faster, simpler and more efficient.
DMA allows the trade to be executed at lower cost especially for buy-side firms such as hedge funds, mutual funds, pension funds, and private equity funds.
As the order execution happens in a very short period of time, the trader can leverage short-lived trading opportunities available in the market.
The investor can exert more control over the trade rather than the broker.
The investor is now presented with a chance to partake in pre and post market auctions, which was earlier off bounds.
Lower risks of confidential information of the investor getting leaked as there are no third party investors involved.

Market disruption in case poorly regulated DMA as trading errors could be easily compounded by virtue of high-speed transactions.
DMA requires sophisticated infrastructure which is difficult and costly to maintain.
Regular system maintenance is required to ensure proper functioning.
Trading will be less flexible than over-the-counter methods.