Direct market access (DMA)

In a typical DMA setup, a brokerage firm provides the connectivity and risk controls (e.g., pre-trade risk checks), but does not exercise discretion over the order's execution. DMA provides market participants with direct access to trading venues and counterparties, and allows customers to place orders directly into exchanges' central limit order books.

DMA is classified as low-touch execution and is often utilized by institutional traders seeking low latency, transparency, and greater control over their orders. This contrasts with high-touch services that involve broker judgment or agency execution models.

In the early days, DMA was closely associated with the use of a broker's EMS or OMS to send orders directly to a trading venue, such as an exchange or an ECN. Today, various APIs are able to provide DMA without the bloat of a full-service EMS or OMS.

DMA's proliferation coincided with electronic trading adoption during the late 1990s through the 2000s.

Among the earliest pioneers of DMA was Spear Leeds & Kellogs (SLK) through its REDI systems division. A leading specialist firm and provider of execution and clearing services in US equities, SLK sought to capitalize on the growing trend towards electronic trading, and offered an EMS that allowed customers to route orders directly to the exchange, market maker, or ECN of their choice.

After SLK was acquired by Goldman Sachs in 2000, REDI's functionality was quickly expanded to other asset classes and Goldman saw tremendous success with its DMA business.

This catalyzed a competitive trend among broker-dealers. Subsequently, in 2004, Bank of America acquired Direct Access Financial Corp., Bank of New York acquired Sonic Financial Technologies, and Citigroup acquired Lava Trading in rapid succession. Around this time, ITG launched Triton EMS, its own DMA platform.

By 2008, DMA adoption reached critical mass, with Goldman's REDIPlus EMS alone capturing approximately 46% market share among buy-side trading firms, while Triton secured the second position in the DMA platform ecosystem.

While retail trading platforms like Robinhood technically constitute DMA from an originalist microstructure perspective, modern industry terminology primarily associates DMA with institutional investors' low-touch execution services. Contemporary searches for DMA services predominantly reveal offerings marketed toward hedge funds and asset managers rather than retail market participants.

The retail segment nonetheless represents significant DMA adoption, potentially exceeding institutional usage in aggregate transaction volume. However, as DMA has become ubiquitous, the term's distinctiveness has diminished in retail contexts.

Despite the term's implication, truly direct and zero-touch execution, also referred to as naked access, is rare and increasingly restricted by regulatory frameworks. Most participants can't trade directly using their own credentials and without any pre-trade risk checks, particularly after the implementation of regulations such as Rule 15c-35 in US equities markets and MiFID II in European markets.

"Naked access" now primarily functions as a regulatory term denoting prohibited trading practices with insufficient broker oversight or risk controls.

Today, market access typically employs sponsored access, where firms utilize the credit lines and trading privileges of their prime brokers or clearing firms. This model incorporates mandatory safeguards including:

• Pre-trade risk checks (regulatory compliance)
• Kill-switch mechanisms for error mitigation
• Margin control systems
• Real-time risk management tools

Sponsored access offers particular advantages to HFT firms seeking low latency connectivity to trading venues while avoiding compliance costs associated with maintaining broker-dealer operations. This structure typically features reduced transaction costs compared to high-touch execution alternatives, making it attractive to cost-sensitive algorithmic trading operations.

It's important to distinguish that DMA primarily concerns order execution infrastructure rather than market data systems. Many trading firms utilizing institutional DMA implementations still employ normalized data feeds or managed ticker plants from third-party providers like Databento rather than direct exchange market data connections.