Direct Market Access (DMA)

Direct market access refers to access to the electronic facilities and order books of financial market exchanges that facilitate daily securities transactions. Direct market access requires a sophisticated technology infrastructure and is often owned by sell side firms.

Direct market access is the direct connection to financial market exchanges that makes completion of a financial market transaction final. Individual investors typically do not have direct market access. While trade execution is usually immediately enacted, the transaction is fulfilled by an intermediary brokerage firm. Brokerage firms can work on a market making quote basis, however, since the 1990s many brokerage platforms have evolved to using direct market access for completing the trade. With direct market access, the trade is executed at the final market transaction phase by the brokerage firm. The order is accepted by the exchange for which the security trades and the transaction is recorded on the exchange's order book.

Intermediary brokerage firms are known to have direct market access for completing trade orders. In the broad market, direct market access platforms can be owned and managed by various entities. Broker-dealers and market making firms have direct market access. Sell side investment banks are also known for having direct market access. Sell side investment banks have trading groups that execute trades with direct market access.

In the financial markets, sell side firms offer their direct market access trading platforms and technology to buy side firms who wish to control the direct market access trading activities for their investment portfolios. This form of control is considered sponsored access. Market regulators such as the Financial Industry Regulatory Authority (FINRA) oversee all of the market’s trading activities and have raised some concerns over the sharing or sponsored access agreements offered by sell side firms. If a buy side firm does not have direct market access then it must partner with a sell side firm, brokerage or bank with direct market access to determine a trading price and execute the final transaction.

Direct market access platforms are enabled by members of the exchange. The technology and infrastructure required to develop a direct market access trading platform can be expensive to build and maintain. Thus, the agreements between direct market access platform owners and sponsored firms.

With direct market access, a trader has full transparency of an exchange’s order book and all of its trade orders. Direct market access platforms can be integrated with sophisticated algorithmic trading strategies which can streamline the trading process for greater efficiency and cost savings. Direct market access allows buy side firms to often execute trades with lower costs. Since it is all electronic, there is less chance of trading errors. Order execution is extremely fast, so traders are better able to take advantage of very short-lived trading opportunities.