For the past decade, electronic trading has been
the dominant trend on both sides of the Atlantic. Following rapid
developments in automation, direct market access has transformed the
equities trading landscape.
Direct market access (DMA) is utilized by many hedge
funds to facilitate complex algorithmic strategies. Through direct
connectivity to market venues, DMA allows faster and cheaper trading so
that firms can focus on creative strategies to extract greater alpha and
return. Growth of DMA can be attributed to developments on the buy side
and regulatory implementations. As the most frequent and most aggressive
users of DMA, hedge funds play a large role in encouraging greater rates
of DMA in the US and Europe. With the growth of the hedge fund industry
and the greater adoption of statistical arbitrage strategies, better
execution standards combined with low-touch trading will become a
necessity.
In a new report, The Evolution of Direct Market
Access (DMA) Trading Services in the US and Europe, Celent examines
DMA across the US and Europe including growth, pricing, market share, and
market leaders in both regions. DMA market models and evolution are also
addressed, as well as growth drivers contributing to DMA success.
Celent estimates the US market for DMA to be 15–18%
of equities share volume. DMA flow is predicted to increase to 20% of
equities share volume by 2010, gradually replacing manual executions. In
Europe, DMA flow for equities is expected to grow from 8% of traded value
to 15% in 2011. The demand for greater venue aggregation to cope with the
proliferation of alternative trading systems (ATSs) and multilateral
trading facilities (MTFs) and the need for faster execution and compliance
in response to MiFID regulations are expected to contribute to DMA growth
in Europe.
“The long and short of it all is that
DMA makes trading cheaper and faster and is a growing option for traders.
Moreover, it puts positive pressure on exchanges and other liquidity
venues to improve their technological standards and execution quality in
order to stay in line with DMA developments,” says David
Easthope, senior analyst with Celent's Securities & Investments
group and co-author of the report.
DMA’s attractiveness as a toolset for
the buy side should not be minimized. “As raw material for more complex
add-ons like algorithms and smart order routing, DMA should continue to
see increased demand in this electronic trading age,” says Chermaine
Lee, analyst with Celent's Securities & Investments group and
co-author of the report.
This 31-page report contains eight
figures and 11 tables. A table of contents is
available online.
