Direct Market Access and Sponsored Access

Direct market access (DMA) means sending your orders directly into an exchange's order book through a broker's infrastructure, rather than having the broker or a market maker handle them first. With DMA, your limit order appears in the book under the broker's membership exactly as you entered it, at the venue you chose. It gives traders more control over where and how their orders trade, at the cost of more responsibility.

How orders reach the market#

What DMA gives you#

• Venue choice. Send an order to a specific exchange or ECN, for example to earn a maker rebate or to hit liquidity you can see there.
• Visibility. Your limit orders join the public order book, giving you real queue position.
• Order types. Access to exchange specific orders such as midpoint pegs, post-only or hidden orders. See Pegged and Midpoint Orders.
• Speed and transparency. Fewer intermediaries between you and the matching engine.

What DMA costs#

DMA platforms usually charge per share or per contract commissions, plus exchange and regulatory fees, and pass through rebates. They often have monthly platform and data fees and higher account minimums. For small, infrequent traders, standard commission free routing can be cheaper overall. See Commissions and Fees and Market Data Fees.

Sponsored access and the market access rule#

Under sponsored access, a broker lets a client trade using the broker's exchange membership, often through the client's own technology. Because a malfunctioning client system could flood an exchange with erroneous orders, US regulators require brokers to maintain pre-trade risk controls under the SEC's Market Access Rule (Rule 15c3-5), adopted in 2010. Unfiltered "naked" access, where client orders reach the exchange without the broker's checks, is prohibited.

Typical pre-trade checks include:

• maximum order size and value,
• price collars that reject orders far from the market,
• credit limits per client,
• restricted symbol lists,
• duplicate order detection.

DMA in other markets#

• Futures: traders typically connect to the exchange through a futures commission merchant's systems, which is effectively DMA, since each contract trades on one exchange. See Futures Commission Merchants (FCM).
• Forex: "ECN" and "STP" accounts route orders to liquidity providers rather than a dealing desk, similar in spirit to DMA.
• Crypto: exchanges offer direct API access to all users, so most crypto trading is already direct in this sense. See Working With Exchange and Broker APIs.

Is DMA right for you?#

DMA suits traders who trade frequently, understand venue fees and rebates, care about queue position and want advanced order types. For long term investors and occasional traders, the benefits are usually small.

Frequently asked questions#

What is direct market access?#

A way of sending orders straight to an exchange's order book through a broker's systems, with the trader choosing the venue and order type.

Is DMA faster?#

Usually, because orders pass through fewer intermediaries, although speed also depends on the platform and your connection.

What is sponsored access?#

An arrangement where a client trades using a broker's exchange membership with its own systems, subject to the broker's mandatory risk controls.

Sources#

• Wikipedia, Direct market access