Sebi streamlines Direct Market Access for trading

New system obviates need for broker-client agreement for retail investors, replaces it with simpler terms-and-conditions document

Market regulator Sebi today streamlined the Direct Market Access (DMA) facility, which gives the investors a direct access to the stock exchange's trading system without any manual intervention by the broker.

As per the new guidelines, the investors seeking to avail DMA facility would not have to enter into a separate broker-client agreement and it would be replaced by a simpler terms-and-conditions document, the regulator said.

However, the brokers would have to specifically authorise clients or investment managers acting on behalf of the clients for providing DMA facility, after fulfilling Know Your Client (KYC) requirements and carrying out necessary due diligence.

The broker would have to maintain proper records of such due diligence procedures, Sebi said in a circular.

Currently, the DMA facility is available only for the institutional clients.

Some of the benefits of DMA facility include direct control of clients over orders, faster execution of their orders, reduced risk of errors associated with manual order entry and lower transaction costs.

Sebi had allowed DMA facility in April 2008 and made some changes in these guidelines about a year later in February 2009 by allowing institutional investors to use DMA through their investment managers.

The regulator today said it has made further changes in the guidelines as per the feedback from various market entities and the recent measures prescribed by it to simplify and rationalise the 'Trading Account Opening Process'.

As per the revised guidelines, the DMA facility can be used by a client directly or through a Sebi-registered investment manager.

In case the facility is used by the client through an investment manager, the investment manager may execute the necessary documents on behalf of the client.

Sebi has also asked the stock exchanges to take necessary steps and put in place necessary systems for implementation of the new guidelines for DMA facility and make the necessary amendments to their rules and regulations.

The bourses have been also asked to communicate to Sebi the status of implementation of the new provisions in the their Monthly Development Report.

Sebi has provided two separate 'terms and conditions' documents for DMA facility availed directly by the clients and those availing it through investment managers.

Among other terms, the client is expected to be fully aware of the risks associated with the market and the securities being traded through DMA. The clients would have to ensure that DMA facility is used only to execute their own trades and not for transactions on behalf of others.