The democratization of direct market access

By Ahmed Heikal, Product Manager, Vela

Direct Market Access (DMA) has become increasingly pervasive across the industry in recent years, particularly amongst principal trading groups (PTGs). In fact, research from Acuiti shows that around 89% of PTGs now access markets directly, either through their own DMA platforms or those provided by a third party.[i]

For low touch electronic trading across a range of asset classes – Equities, Exchange-Traded Derivatives, and increasingly FX and Fixed Income – DMA offers benefits such as convenience, greater control over execution, minimal information leakage, consistent speed at ever-lower latencies, and the ability to interact directly with a trading venue’s order book. So it’s clear why it has become so popular, not only amongst PTGs but also with an increasing number of hedge funds and other buy-side firms engaged in algo trading.

Another factor fueling the growth of DMA is the trend towards more modular, interoperable, component-based, Software-as-a-Service (SaaS) DMA platforms. This trend has broken down many barriers to entry, making DMA much more accessible, to a wider group of market participants, than it has been in the past.

Much of this comes down to cost. The costs involved in setting up an independent DMA platform, even for just one trading venue, are significant when one considers what needs to be included. There’s writing and testing API interfaces to the venue’s trading gateway; co-location fees, including connectivity, rack space and servers/hardware; market data fees; and so on. It all adds up, particularly when the maintenance costs of keeping up with mandatory exchange-driven changes (EDCs) are also considered.

However, all of these costs can be minimized through a democratized DMA Platform-as-a-Service model, such as that offered by Vela. By utilizing this model, firms can reap the full benefits of a comprehensive DMA platform at a fraction of the cost of operating their own.

Any DMA platform offered ‘as-a-Service’ should deliver much more than just execution software or venue gateway access. Every aspect of execution technology needs to be well thought out. This includes all of the elements mentioned previously such as hardware, software, colocation facilities, lines and connectivity, market data, etc. In addition, buy-side and sell-side firms must also keep in mind other considerations like data normalization, cloud deployment, and ease of integration with existing infrastructure. Needless to say, Vela provides all of this as part of the service.

If you would like more in-depth analysis of how DMA and the as-a-Service model are coming together, and what that means for financial markets participants, you can download your copy of the full white paper here.

[i]The research was conducted on PTGs participating in the listed derivatives market.