The facility is currently available only to institutional investors in India.
Domestic insurance companies have started using the direct market access (DMA) facility for stock market transactions to keep trades confidential and benefit from extremely low broking rates.
DMA is an electronic facility that allows brokers to offer their clients a direct access to the exchange trading system through their infrastructure, but without manual intervention. The Securities and Exchange Board of India (Sebi) had allowed DMA in April 2008. This facility is currently available only to institutional investors in the country.
| DMA EXPLAINED |
| WHAT’S DMA? DMA is an electronic facility that allows brokers to offer clients direct access to the exchange trading system through their infrastructure, but without manual intervention. Sebi had allowed DMA in April 2008 WHO ARE ITS MAJOR USERS? |
Foreign institutional investors (FIIs) are the major users of DMA in India, with more than 30 per cent of their trades coming through this route, according to brokers.
“Since manual intervention is not there in DMA, you can have finer broking rates, which can be as low as 25 per cent of the normal rates,” said Aneesh Srivastava, chief investment officer at IDBI Federal Life Insurance. “You can monitor your trade on a real-time basis. Also, sanctity of trades is maintained as they are not disclosed,” he added. About 25 per cent of IDBI Federal Life Insurance’s trades in stock markets now happen through DMA.
The Life Insurance Corporation, India’s biggest insurer, has also shown interest in using this facility for its stock market transactions, according to brokerages officials.
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The brokerage rate for DMA in the cash market is 5-6 paisa for a turnover of every Rs 100. For trades placed over phone and manually entered by dealers, institutional investors pay an 10-15 paisa per Rs 100 turnover as brokerage.
“We are using DMA in a small way at present. It works well wherever the liquidity is low, as the identity is not revealed. Also, it gives the full control in terms of execution of the orders,” said Sampath Reddy, chief investment officer (equity) at Bajaj Allianz Life Insurance. “Sometimes on smaller orders or orders with a higher monitoring level, brokers may not pay much attention in those cases DMA will be more helpful,” he added.
Bajaj Allianz Life Insurance started using DMA six to seven months ago. Less than five per cent of the company’s trade in the stock market comes through this route. “The use of DMA will keep on increasing gradually. But you can’t replace traditional broking with DMA,” Reddy added.