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Impact of Direct Market Access in India

Report Published by Celent

The introduction of DMA trading for institutional investors in India reflects the nation’s move towards a technologically advanced and efficient electronic trading infrastructure. Celent anticipates high adoption of DMA channels among industry participants and high growth of DMA flows over the next few years.

In a new report, Impact of Direct Market Access in India, Celent examines the reasons behind the introduction of DMA in India, including growth drivers and demand for its adoption, changing trends in the market structure among participants, and the implications of these trends on the overall potential growth of DMA flow volumes.

DMA has become popular in the advanced markets of the US and Europe. This channel has provided the buy side with greater control over trades, faster and better quality of execution, facilitation of complex trading strategies, market and liquidity aggregation, increased compliance with regulations, and lowered brokerage fees. It is not surprising, then, that DMA flows in these markets have quickly risen to 15–18% and 8% of the total respective flows. DMA’s success begs the question: will it find similar acceptance in India? The answer is a resounding yes.

“Conditions in the market, especially some key market inefficiencies at the brokers’ end, are ripe for the adoption and usage of DMA channels. Major brokerage houses are in a race with each other to enhance their trading systems and be among the first to offer these services,” says Sandeep Hebbar, senior analyst with Celent's Banking group and author of the report.

A significant proportion of the major brokerage houses that cater to the institutional segment and the active set of buy side institutions are getting ready to provide DMA channels, and mass trading will commence by the end of 2008. Celent estimates that DMA trades will amount to 11% of the total flow of trades by 2010. Currently, local technology vendors dominate the local DMA solutions market.

The report begins by exploring the growth drivers that have enabled the quick acceptance of DMA in the US and Europe. It then explores the Indian market structure and some key market inefficiencies to see if conditions exist for the adoption of DMA. It further analyzes the provider and user markets to arrive at an estimation for potential DMA providers/users and DMA volumes. Finally, the report profiles the leading technology vendors that are providing DMA solutions and services for the local market.