Taking a Fresh Look at DMA

About five years ago, we took the concept of direct market access (DMA) from the world of equities and introduced it to the world of FX. We did so because we had witnessed its benefits of neutral execution in equity markets and knew it would be advantageous to FX market participants as well. As we had predicted, DMA quickly enjoyed wide market acceptance, in part because it has something to offer for everyone. Integral hasn’t stopped innovating, however. While others still view DMA as just a better technology to achieve connectivity, Integral views it as a philosophy to organize today’s market into one that has less friction, more transparency and lower barrier to entry.

Not all DMAs are created equal

The (wrong) mental model of most DMA providers today is using technology to deliver a connectivity network between buy-side participants, market makers and other liquidity venues. I call this process, providing DMA services at level zero.

Integral has arrived at a much broader understanding of DMA, one that goes far beyond the connectivity level. Our model is a combination of functionality that resides partly in FX Grid®, Integral’s multi-sided trading network, and partly with on demand services that run on top of it. On the level of FX Grid, we added multiple price discovery aggregation mechanisms, credit line management, netting, straight-through-processing for pre and post trade processes, verification of execution with QOS, and most importantly, monitoring services for connectivity and rejection rates. A set of user-controlled algorithms for blending, splitting and spreading liquidity for internal and external users rounds up the service.

Integral’s On Demand services that run on top of FX Grid include FX Power Trader™, our retail FX margin trading solution, and FX Inside Professional™, the EMS solution for institutional market participants.

Neutrality and true DMA

Integral is the only DMA provider who allows any large or small FX brokers to meet their customers’ demand for DMA trade execution models. The critical thinking behind this initiative is that as a true DMA facilitator, a technology provider cannot limit itself to becoming a market place, or portal, built around one (or just a few) trading styles. A true DMA facilitator has to remain a neutral technology provider.

Unfortunately, most other FX trading platforms morphed into liquidity venues themselves. In other words, although many trading platforms start out as an OTC (DMA) connectivity network, over time they tend to become a market place and lose their value proposition as pure DMA provider. Some even compete as an FX trading portal. By definition, a portal ends up offering a one-size-fits-all trading service to all participants; it certainly cannot serve the DMA brokers who want to be the trading portal for their own customers.

Looking ahead

The bottom line is that new venues and market makers will come and go. Trading styles and counterparties will constantly change and evolve. Market participants will want tailored services based on their preferences for size, price, immediacy, risk-transference, etc. They need to be flexible and connected to all parties and venues in order to obtain the best execution. For market participants to get linked together is critical in order to be able to rapidly transact with new venues and trading counterparties as market changes occur.

Further, institutional wholesale OTC participants will have to be highly connected with their counterparts, the intermediaries, and other liquidity venues to maximize their strategic position and minimize their implicit and explicit trading costs. Therefore, connectivity and flexibility without large upfront costs is a key requirement.

As stated before, our DMA model is a combination of functionality that resides partly in the network (FX Grid), and partly with on demand services (FX Power Trader and FX Inside Professional) that run on it. It goes far beyond the connectivity level. We believe this to be the winning combination of the future.