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2011 Oct/28
Description of DMA and Related Issues
Issue & Policy 11-05
PDF
- Research Topic Capital Markets
Pyo, Youngsun
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- Summary
- DMA(Direct Market Access) is a service provided either by the broker or the exchange, which enables investors to directly control the order handling process and thereby increase the market access ability in terms of speed and order handling. The sophistication of the buy-side enhanced by utilization of financial IT technologies prompted both the sell-side and the exchange venues to provide increasing access directly to the markets. DMA enables institutional investors to deploy order algorithms in order to minimize the market impact of large size orders. It also is an essential service required by the high frequency traders due to high rate of order submissions that require automated electronic access to the market at high speed. In the end, DMA improves the overall liquidity conditions in the market thereby reducing the transaction costs. DMA has become a commoditized service provided by the major exchange venues around the world in order to attract liquidity. In Korea, DMA has been widely practiced, especially in the exchange listed equity derivatives market. Algorithmic orders from foreign investors in the cash market has been on the rise recently, presumably seeking to split their orders to reduce impact. Domestic regulations and exchange rules are being mended in order to prevent settlement risks that might arise from naked access to the market.