International Financial Services Centre Authority(IFSCA) vide circular dated 21.06.2023 issued to the Broker-Dealers has provided clarification regarding Direct Market Access (DMA) facility. Direct Market Access (DMA) is a facility which allows Broker-Dealers to offer their clients direct access to the trading system of the Stock Exchange, through the Broker-Dealer’s trading systems, without any manual intervention by the Broker-Dealer.
The Broker-Dealers shall specifically authorize prospective clients for providing DMA facility
- Fulfilment of the KYC/AML requirements as specified by IFSCA from time to time.
- Due diligence of the prospective client with respect to the credit worthiness, risk taking ability and track record of compliance.
- The governance and ownership structure of the prospective client.
- The ability of the prospective client to meet its financial obligations.
- Any additional measures that the Stock Exchange considers appropriate to ensure that the clients are deemed fit and proper for permitting access to the DMA facility.
- The Broker-Dealers are required to maintain proper records of such due diligence. Individual users at the client end shall also be authorized by the Broker-Dealer based on minimum criteria. The records of user details, user-id and such authorization shall be maintained by the Broker-Dealer. Details of all user-ids activated for DMA shall be provided by the Broker-Dealer to the Stock Exchange.
- The Broker-Dealer shall enter into a specific agreement with the clients for whom they permit DMA facility, the nature and detail of which should be appropriate to the nature of the service provided. This agreement shall, inter alia, include the following safeguards: (a) The DMA facility shall be used by the client only to execute its own trades and shall not be used for transactions on behalf of any other person/entity.(b) The necessary systems and controls with respect to Electronic/Automated Risk Management shall be in place at the Broker-Dealer’s level before the release of order to the Exchange trading system. The client shall agree to be bound by the various limits that the Broker-Dealer shall impose for the usage of the DMA facility. (c) Right to withdraw DMA facility if the predefined thresholds are breached or for any other such concerns. (d.) Withdrawal of DMA facility on account of any misuse or on instructions from IFSCA or the Stock Exchange.
- Ensure that the trading limits, exposure limits and position limits are set for all its DMA clients based on risk assessment, credit quality and available margins of the client.
- Have appropriate authority levels to ensure that these limits are established only by persons authorized by the Chief Risk Officer or Chief Compliance Officer or any other such senior employee of the Broker-Dealer authorized to have oversight over the Compliance or Risk Management functions.
- Ensure that all DMA orders are routed through electronic/automated risk management systems of the Broker-Dealer to carry out appropriate validations of all risk parameters including Quantity Limits, Price Range Checks, Order Value and Credit checks before the orders are released to the Exchange.
- The Broker-Dealer may provide for additional risk management parameters as they may deem appropriate.
- The Broker-Dealer shall maintain sound audit trail for all DMA orders and trades and should at all times have the capability to provide identification of actual user-id for all such orders and trades. The audit trail data should be available for at least 10 years, from the date of execution of trades.
- The Broker-Dealers shall follow the similar logic/priorities used by the Exchange to treat
DMA client orders. In this regard, the Broker-Dealers are required to maintain all activities/
alerts log with audit trail facility. The DMA Server shall have internally generated unique
identifier for all such client order/trades.