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The authority permits broker-dealers to offer Direct Market Access and Sponsored Access facilities to eligible clients for trading on stock exchanges in the International Financial Services Centre. Broker-dealers must conduct due diligence, maintain audit trails for ten years, establish risk management limits, and obtain prior approval from the stock exchange. Clients must satisfy specific residency and regulatory criteria, and they may perform only one level of sub-delegation if regulated by an IOSCO-MMoU signatory. All order routing servers must remain located within the International Financial Services Centre, and broker-dealers retain full liability for all orders emanating from these facilities.
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[Image omitted. See the official document.]
CIRCULAR
IFSCA/CMD-DMIIT/EXCHTRD/2023-24/001
June 21, 2023
To,
All the Stock Exchanges in the International Financial Services Centre (IFSC) All the Broker-Dealers in the International Financial Services Centre (IFSC)
Dear Sir/Madam,
Sub: 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-Dealer retains the ability to monitor internally and, if necessary, stop an order prior to it being executed.
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.
The Stock Exchange shall have the operational flexibility to put in place the necessary measures, procedures and guidelines for DMA orders and trades with respect to:
Responsibilities of the Broker-Dealer & due diligence of prospective clients
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:
The Stock Exchange may put any other terms and conditions to be included in the agreement with the clients. The Broker-Dealer’s agreement with its clients shall not have any clause that is in contravention to the regulations/circulars/guidelines issued by IFSCA and the Stock Exchange from time to time.
Introduction of Sponsored Access (SA) facility
Based on the representations received from the Stock Exchanges and market participants, in order to enhance market participation and broaden the investor base in IFSC, it has been decided to permit Broker-Dealers to offer the facility of Sponsored Access (SA) to its clients, for trading on the Stock Exchange.
Sponsored Access is a form of Direct Market Access in which the Broker-Dealer permits its client to transmit orders directly to the Exchange trading system without routing it through the Broker-Dealer’s trading system. Such an arrangement may facilitate low latency trading and assist in preserving the confidentiality of sophisticated, proprietary trading strategies of the clients.
The Broker-Dealer shall sign a SA agreement or provide a SA undertaking to the Stock Exchange.
The orders routed through the client’s trading application via SA should pass through the controls / pre-trade risk management layer provided by the Stock Exchange with the parameters being determined and configured by the Broker-Dealer.
The Broker-Dealer shall enter into an agreement with the clients desirous of availing the SA facility. The due diligence by the Broker-Dealer for providing SA to such clients shall, inter alia, include:
The Stock Exchange shall ensure that the agreement between the Broker-Dealer and its client are in place prior to approving the facility of SA.
Sub-delegation of DMA/SA
A client of a Broker-Dealer may sub-delegate its DMA/SA facility to its own client (sub-delegatee), subject to the condition that the client sub-delegating the DMA/SA facility is an entity, regulated in any capacity, by a securities market regulator which is a signatory to the International Organization of Securities Commission’s Multilateral Memorandum of Understanding (IOSCO-MMoU).
The Broker-Dealer permitting a DMA/SA client to sub-delegate its DMA/SA facility, should be able to identify the different order flows from such sub-delegation.
Only one level of sub-delegation of DMA/SA facility shall be permitted i.e., sub-delegation shall be permitted only up to a client’s client (sub-delegatee). The sub-delegatee shall not be permitted to in turn sub-delegate the DMA/SA facility to its client.
