By Gerald Blondel
Direct Market Access (DMA) is designed to enhance trading efficiency and accessibility and allows the buy-side greater control over their orders. It significantly reduces order-time; supports algo and block trading; and enables the buy-side to connect directly to the FIX DMA Gateway. Bursa Malaysia, recently announced their launch of DMA for Equities signifying a step forward in the way buy-side can trade equities. FIXGlobal brings you the story of DMA and Sponsored Access at Bursa Malaysia , and the associated implications.
Enabling Sponsored Access
On November 9, 2009 Bursa Malaysia announced the launch of DMA for Equities, a significant development indeed! They can now provide their investors, “sponsored access”, which allows the brokers to connect their clients directly to Bursa Malaysia’s trading system, without going through the broker’s trading system. Simply put, when an investor keys-in an order via his broker, there is no manual intervention. The system directly routes the order to the exchange once the process of checks and validations are carried out by the DMA Gateway, which is hosted by the exchange. So is the broker kept in the loop? What role does he play?
“The sponsoring broker receives ALL the execution reports. Whether the sponsored client sends a new order, an order cancellation or an order modification, a copy of the execution report is sent to the sponsoring broker. The sponsoring broker also receives a copy of the execution report when the order is partially or fully matched,” explains Gerald Blondel, Bursa Malaysia’s DMA Project director. There have been calls against sponsored access in the US, terming it an ‘undesirable’ practice. In the absence of the broker’s human intervention, how is the risk minimized? “The sponsoring broker sets the risk filter, e.g. MAX capital per order, MAX capital per day remotely in the gateway etc. When the client sends an order entry or modification, this order is checked against the risk filters in the gateway, at Bursa. The order gets sent to our trading engine only if it is all OK,” states Blondel.
From there to here
Bursa’s journey towards being leading-edge began in 2006, when they decided that investing in DMA was fundamental to remaining competitive in this technology-driven industry. It was understood that this won’t happen overnight. Bursa took the first step in rolling out this project by launching the ECOS gateway. This gateway was an enhancement of their Winscore System, launched way back in 1995 and was developed to improve internet trading via their equity brokers.
“The ECOS gateway enabled Winscore – the trading front-end provided by Bursa Malaysia- to accept orders via the FIX messaging protocol. As a result, latency is reduced and more than 20 participating organizations are now using it for internet trading and inter-broking.”
In April 2008, Bursa launched DMA Sponsored Access for derivatives, the first exchange in Asia to offer the service. “We received a positive response from the community, with 25% of all derivatives trading now being executed by DMA. This year we moved onto the next step by launching DMA for Equities with wide-ranging implications, like raising interest from high frequency traders, algo traders, and market makers. With this launch we will provide a complete DMA infrastructure for both the equities and derivatives markets.”
Despite the remote automation of the risk management element of “sponsored access”, Blondel believes the benefits outweigh the risks especially if the brokers are equipped to better manage the risk involved. “By allowing sponsored access for institutional investors and allowing market participants to install their own servers in the exchange’s data centre through the co-location hosting service, order management is processed faster and latency is much lower. As far as risk management goes, the DMA Gateway, hosted at the exchange and shared by our members contains pre-trade risk filters feature. This enables our members to manage client risk in real-time. We are also very confident that the risk filters are enough to protect the clearing member as well as the clearing house. On top of the risk filters, the brokers are using the drop copy feature to do real time risk management,” concluded Blondel.
By Gerald Blondel