Direct market access (DMA)

Direct market access (DMA) allows traders to send orders directly to a venue’s matching engine without going through intermediaries like brokers. This direct connection can lead to faster execution times, which is crucial in high-frequency and algorithmic trading.

However, true DMA, also referred to as naked access, is uncommon in practice. Most participants don’t have the ability to trade directly using their own credentials. Instead, they rely on the credentials and infrastructure of their clearing firm, broker, or exchange member firm to place trades. This is known as sponsored access.

In sponsored access, a firm uses the credit lines and trading privileges of another firm (usually a prime broker) to trade on a venue. Although this setup allows for rapid trade execution, there is typically a minimal layer of supervision required. These safeguards include pre-trade risk checks (e.g., in compliance with SEC Rule 15c3-5), a kill switch to terminate trades in case of error, margin controls, and other risk management tools.

In short, DMA gives the trader a more direct connection to the market, but sponsored access is a more common setup where risk management and regulatory checks remain in place through the broker's oversight.