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DMA in Indian Stock Market
In the recent circular issued by SEBI, the regulator has allowed Direct Market Access (DMA) in Indian Stock Market and this will surely be the most appreciated and timely technology transformation approval for the Indian stock market from the regulators. DMA is not new to the International trading industry. This blog is an attempt to give an overview of DMA and attempt to showcase how this will benefit Indian Markets as well.
DMA is basically automated routing of an order or routing an order with no manual intervention directly to an execution venue – exchanges (NSE, BSE in India) or other liquidity pools (internationally). It gives more control to Buy-side (institutions like LIC, and other mutual funds) for faster, lower cost & anonymous executions. International Markets have used this technology to aggregate the liquidity. For India, this will possibly start to create more liquidity and giving more power to the institutions. DMA has already matured in International markets and it has become more of a service from the broker platform.
DMA has different forms but possibly India will start from Pure DMA, which includes basic order types only and then will advance to other forms and reach where strategies can be defined at the system level.
What India will benefit from DMA approval?
Due to DMA setup and operations, some of the benefits that entire trading industry in India will reap are as follows:
#There will be increase participation from the buy-side firms more-so-ever knowing that more control for execution will be with them.
#The trade volume will increase without influencing the steep rise or fall in stock price
#The market fluctuation due to large order entries will be negligible as the large order will be sent to exchange in small lots by the algorithmic trading systems
#The insider trading will be reduced which used to be achieved by small community by knowing the details of large orders
#The infrastructure and the systems will be upgraded to handle increasing order flow and efficient order flow. Though, Indain exchanges have one of the best matching engines and connectivity for their brokers.
#There will be reduced dependency on the brokers and more emphasis will be on systems capability at brokers outlet rather than individual dealer capabilities (manual dependency)
#Although the network will be complicated but easier to monitor and maintain as per regulatory requirement which is good news.
#This will provide an opportunity for other technologies to be implemented and tested in the Indian Market as well making it more world class
This change is vital for the next revolution in Indian stock market - using advanced technologies in electronic trading.
What is important to note here is that currently DMA is applicable for Institutions only. But primarily, worldwide, Institutions are the biggest beneficiaries of DMA as financial technology. This has actually given powers to execute and define their strategies without requesting the brokers for the same. The broker will have an additional role to establish & rent this infrastructure to their institutional clients if they have to continue in this business. Many small brokers may have to merge with the bigger ones.
Overall, this is a boon to Indian trading industry as such but we will have to wait and watch for next few years how this actually changes the Indian trading environment landscape.
In the recent circular issued by SEBI, the regulator has allowed Direct Market Access (DMA) in Indian Stock Market and this will surely be the most appreciated and timely technology transformation approval for the Indian stock market from the regulators. DMA is not new to the International trading industry. This blog is an attempt to give an overview of DMA and attempt to showcase how this will benefit Indian Markets as well.
DMA is basically automated routing of an order or routing an order with no manual intervention directly to an execution venue – exchanges (NSE, BSE in India) or other liquidity pools (internationally). It gives more control to Buy-side (institutions like LIC, and other mutual funds) for faster, lower cost & anonymous executions. International Markets have used this technology to aggregate the liquidity. For India, this will possibly start to create more liquidity and giving more power to the institutions. DMA has already matured in International markets and it has become more of a service from the broker platform.
DMA has different forms but possibly India will start from Pure DMA, which includes basic order types only and then will advance to other forms and reach where strategies can be defined at the system level.
What India will benefit from DMA approval?
Due to DMA setup and operations, some of the benefits that entire trading industry in India will reap are as follows:
#There will be increase participation from the buy-side firms more-so-ever knowing that more control for execution will be with them.
#The trade volume will increase without influencing the steep rise or fall in stock price
#The market fluctuation due to large order entries will be negligible as the large order will be sent to exchange in small lots by the algorithmic trading systems
#The insider trading will be reduced which used to be achieved by small community by knowing the details of large orders
#The infrastructure and the systems will be upgraded to handle increasing order flow and efficient order flow. Though, Indain exchanges have one of the best matching engines and connectivity for their brokers.
#There will be reduced dependency on the brokers and more emphasis will be on systems capability at brokers outlet rather than individual dealer capabilities (manual dependency)
#Although the network will be complicated but easier to monitor and maintain as per regulatory requirement which is good news.
#This will provide an opportunity for other technologies to be implemented and tested in the Indian Market as well making it more world class
This change is vital for the next revolution in Indian stock market - using advanced technologies in electronic trading.
What is important to note here is that currently DMA is applicable for Institutions only. But primarily, worldwide, Institutions are the biggest beneficiaries of DMA as financial technology. This has actually given powers to execute and define their strategies without requesting the brokers for the same. The broker will have an additional role to establish & rent this infrastructure to their institutional clients if they have to continue in this business. Many small brokers may have to merge with the bigger ones.
Overall, this is a boon to Indian trading industry as such but we will have to wait and watch for next few years how this actually changes the Indian trading environment landscape.
