Multi Commodity Exchange (MCX) is planning to introduce a direct market access (DMA) system for investors. The bourse has started initial talks with its erstwhile promoter 63 Moons Technologies for the DMA software.
Under the terms of an agreement, 63 Moons has to provide technological support to MCX until 2022.
Confirming the news, a source close to the development told Moneycontrol: “MCX has started working on establishing software for DMA, where investors can trade directly on the exchange without the intermediation of brokers.”
Another source, speaking to Moneycontrol on condition of anonymity, said: “MCX has conducted several rounds of meetings with 63 Moons on preparing software for the DMA facility.”
What DMA does
Direct Market Access through a Computer to Computer Link (CTCL) allows members to provide direct trading terminals using various connectivity modes.
Using DMA, clients/investors can access the market directly using the CTCL software of a trading member and routing orders through that member’s infrastructure.
Currently, this facility is available only to institutional investors. Even in this facility, however, the order has to go through the broker. However, the broker's Order Management System and Risk Management System cannot modify the order.
Moneycontrol reached out to MCX for a response on Tuesday but the exchange is yet to respond.
63 Moons Tech’s response
63 Moons Technologies, which will create the DMA software for MCX, has confirmed the development to Moneycontrol. A spokesperson for the company said: “We are in preliminary discussions with MCX. Our library of innovation is much more advanced, and ready since last the 18 months for this new cyber world thanks to our mentor’s (Jignesh Shah’s) JS Innovation Lab software algo depository. It includes the latest audio crypto authentication, on par with the Western world. This will be a must for the client directly connecting to the exchange, which SEBI wants.”
Sebi not in favour?
It is not clear what exactly Sebi wants, with sources saying the regulator is against DMA for retail investors. A source close to development said: “On this issue, the Finance Ministry and Securities and Exchange Board of India (Sebi) have different viewpoints. Some academicians have submitted a report on DMA to the Finance Ministry. However, Sebi is not in favour of DMA for retail investors.”
Speaking to Moneycontrol, a source privy to the development said: “Sebi does not want exchanges taking so much risk on their shoulders as brokers conduct risk management before allowing trades and take all the risk on themselves. Brokers not only execute orders, they also work on new client acquisition. We have only around 3 crore demat accounts in a large population. On the other hand, around 30 lakh accounts have been opened in last 3-4 months.”
What the experts say
PK Bindlish, former Chief General Manager, Sebi, told Moneycontrol: “A DMA facility for investors without involvement of brokers may raise concerns about risk management at clearing corporations/exchanges. In the case of DMA for institutional investors, risk management is the responsibility of brokers.”
Commenting on the development, Chirag M. Shah, counsel and market veteran, said: “A DMA for non-institutional customers will shift the burden of risk on to the exchanges, and I do not know whether that is such a great idea. Besides, you are not truly dis-intermediating — the role of broker will be played by the exchange.
A source at another exchange told Moneycontrol: “If MCX prepares DMA software then other exchanges will also start work on this facility.”
He added: “One of the stock exchanges has started working on it. This facility will benefit investors on where they want to trade. Currently, brokers prefer the National Stock Exchange due to high liquidity, but Sebi regulations say brokers should execute trades wherever the price of a stock is lower.”