Introduction of Direct Market Access facility
Summary
This circular introduces the Direct Market Access (DMA) facility, allowing brokers to offer clients direct access to exchange trading systems. It mandates that stock exchanges facilitate DMA subject to specific conditions regarding application, operational specifications, and risk management. The document outlines broker liabilities, client authorization requirements, and prohibits cross-trading by DMA users.
Text
Brokers interested to offer DMA facility shall apply to the respective stock exchanges giving details of the software and systems proposed to be used, which shall be duly certified by a Security Auditor as reliable. The stock exchange should grant approval or reject the application... within 30 calendar days... before giving permission... ensure the fulfillment of the conditions specified in this circular.
All DMA orders shall be routed to the exchange trading system through the broker’s trading system. The broker’s server routing DMA orders to the exchange trading system shall be located in India. The broker should ensure sound audit trail... available for at least 5 years. Exchanges should be able to identify and distinguish DMA orders... maintain statistical data... provide information on the same to SEBI on a need basis. The DMA system shall have sufficient security features including password protection... automatic expiry of passwords... reinitialisation of access. Brokers should follow the similar logic/priorities used by the Exchange... maintain all activities/ alerts log with audit trail facility. A systems audit... shall be periodically carried out... certificate... submitted to the exchange. The exchanges and brokers should provide for adequate systems and procedures to handle the DMA trades.
Exchanges shall specify from time to time the categories of investors to whom the DMA facility can be extended. Initially, the permission is restricted to institutional clients. Brokers shall specifically authorize clients for providing DMA facility after fulfilling Know Your Client requirements and carrying out due diligence... ensure that only those clients who are deemed fit and proper... are allowed access... maintain proper records... Individual users... authorized... based on minimum criteria. Details of all user-ids activated for DMA shall be provided by the broker to the exchange. The broker shall enter into a specific agreement with the clients... include safeguards: (a) The client shall use the DMA facility only to execute his own trades... (b) Electronic/Automated Risk management... client shall agree to be bound by the various limits... (c) Right to withdraw DMA facility if the limits set up are breached... (d) Withdrawal of DMA facility on account of any misuse or on instructions from SEBI/Exchange. Exchanges shall prepare a model agreement... broker’s agreement... should not have any clause that is less stringent/contrary...
The broker shall ensure that trading limits/ exposure limits/ position limits are set for all DMA clients based on risk assessment... appropriate authority levels to ensure that the limits can be set up only by persons authorized... The broker shall ensure that all DMA orders are routed through electronic/automated risk management systems... carry out appropriate validations... Quantity Limits, Price Range Checks, Order Value, and Credit Checks... All DMA orders shall be subjected to the following limits: (a) Order quantity / order value limit... (b) All the position limits which are specified in the derivatives segment... (c) Net position that can be outstanding so as to fully cover the risk... (d) Appropriate limits for securities which are subject to FII limits as specified by RBI. The broker may provide for additional risk management parameters...
The broker shall be fully responsible and liable for all orders emanating through their DMA systems. It shall be the responsibility of the broker to ensure that only clients who fulfill the eligibility criteria are permitted to use the DMA facility
Brokers using DMA facility for routing client orders shall not be allowed to cross trades of their clients with each other. All orders must be offered to the market for matching.
In addition to the requirements mentioned above, all existing obligations of the broker as per current regulations and circulars will continue without change. Exchanges may also like to specify additional safeguards / conditions as they may deem fit for allowing DMA facilities to their brokers.
The Stock Exchanges are advised to: make necessary amendments to the relevant bye-laws, rules and regulations... bring the provisions of this circular to the notice of the member brokers/clearing members and also disseminate the same on their website. communicate to SEBI, the status of the implementation... in the Monthly Development Report.
A review of the working of this facility shall be undertaken after six months from its introduction.
This circular is being issued in exercise of powers conferred under Section 11 of the Securities and Exchange Board of India Act, 1992 to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.
Source: SecMarx — Introduction of Direct Market Access facility. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.