Brokers with Direct Market Access?

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darktv

Hello fellow traders and investors,

I've been pondering a question about Direct Market Access (DMA) and the mechanics of stock handling by brokers, especially when stocks are held under the street name of the broker or Designated Market Makers (DMMs). I'd love to hear your thoughts on this.

As we know, many stocks are held in "street name" by brokers or DMMs, and in most cases, trades are executed within the broker's book. However, I often hear brokers claiming to offer DMA to the exchange, which got me thinking: How does DMA really work in these scenarios?

Here are my key questions:

  1. Stocks in Street Name: If stocks are held under the street name of the broker or DMM, doesn't it make more sense for the broker to fill orders internally, especially for efficiency and avoiding the need to change the street name or become a custodian? In other words, why send an order to the open market if it can be matched internally?

  2. True DMA: What does it mean when a broker claims to provide DMA to the exchange in this context? Is it truly direct access to the exchange, or does it still involve internal matching within the broker's infrastructure?

  3. Transparency: How transparent are brokers about their stock handling practices, especially when offering DMA services? Is there a clear distinction between internal matching and routing orders to external markets?

  4. Impact on Execution: Does the choice between internal matching and routing to the open market affect the quality of execution, speed, and costs for traders? How can traders ensure they are getting the best execution?

  5. Also someone know where can I found a list of DMMs with their stocks?
I'm keen to learn more about these dynamics and how DMA operates in practice. If anyone has insights, experiences, or resources to share on this topic, please do. It's an area where clarity can greatly benefit traders and investors.

Looking forward to a fruitful discussion!
 
Yasurfer- Wow, there is a lot here. Since you are not "in the business'", there is no reason why you need to know these details in advance, but there are a number of misunderstandings here. You are mixing up Clearing and Custody with Execution choices. Your Clearing Broker, often the same as your Broker, provides custody of your securities in Street name. This has nothing to do with how the shares were acquired. DMA refers to the ability of your broker to direct your orders on their routes to an ECN or Exchange to find liquidity without any intermediaries. When you send orders to the NYSE, they use a DMM (Before that specialist) to manage the exchange order books and when necessary, provide liquidity. Most of the "Online Brokers" like TDA and Fidelity, send most of their orders to market makers that mostly execute those orders on alternative trading system (ATS) or Dark pools where they try and internalize those orders. Basically, they want to trade with you when it fits their model. Maybe this will help you ask other questions I can better help with. Bob

Yasurfer said:
Hello fellow traders and investors,

I've been pondering a question about Direct Market Access (DMA) and the mechanics of stock handling by brokers, especially when stocks are held under the street name of the broker or Designated Market Makers (DMMs). I'd love to hear your thoughts on this.

As we know, many stocks are held in "street name" by brokers or DMMs, and in most cases, trades are executed within the broker's book. However, I often hear brokers claiming to offer DMA to the exchange, which got me thinking: How does DMA really work in these scenarios?

Here are my key questions:

  1. Stocks in Street Name: If stocks are held under the street name of the broker or DMM, doesn't it make more sense for the broker to fill orders internally, especially for efficiency and avoiding the need to change the street name or become a custodian? In other words, why send an order to the open market if it can be matched internally?

  2. True DMA: What does it mean when a broker claims to provide DMA to the exchange in this context? Is it truly direct access to the exchange, or does it still involve internal matching within the broker's infrastructure?

  3. Transparency: How transparent are brokers about their stock handling practices, especially when offering DMA services? Is there a clear distinction between internal matching and routing orders to external markets?

  4. Impact on Execution: Does the choice between internal matching and routing to the open market affect the quality of execution, speed, and costs for traders? How can traders ensure they are getting the best execution?

  5. Also someone know where can I found a list of DMMs with their stocks?
I'm keen to learn more about these dynamics and how DMA operates in practice. If anyone has insights, experiences, or resources to share on this topic, please do. It's an area where clarity can greatly benefit traders and investors.

Looking forward to a fruitful discussion!
More...
 
BTW, Some transparency is provided with a brokers 606 report. From Generative AI, "
The U.S. Securities and Exchange Commission (SEC) Rule 606 requires broker-dealers to make quarterly reports publicly available. These reports include information about how they route customer orders in equity and option securities. The reports must include:
A section for NMS stocks, separated by securities in the S&P 500 Index and other NMS stocks
A separate section for NMS securities that are options contracts
The reports must be broken down by calendar month. They must also identify the venues to which customer orders are routed for execution.
The SEC adopted Rules 605 and 606 to standardize and improve public disclosure of execution and routing practices. "


Yasurfer said:
Transparency: How transparent are brokers about their stock handling practices, especially when offering DMA services? Is there a clear distinction between internal matching and routing orders to external markets?
More...
 
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