SEBI Plans To Extend Direct Market Access; Retail Investors May Benefit

Retail investors may soon be allowed to trade through direct market access (DMA), a facility that currently serves mostly institutional participants.

In a consultation paper released on Monday, the Securities and Exchange Board of India (SEBI) proposed widening access to DMA while also simplifying several technology-related regulations that apply to exchanges, clearing corporations and depositories.

The move comes as DMA usage has been picking up in the market. In the NSE cash segment, DMA accounted for 4.7% of trading activity in May 2026, the highest level in nine months and 91 basis points higher than the previous month.

Why Does SEBI Want To Expand DMA?

DMA allows an investor's order to be routed directly to an exchange through a broker's trading system. In simple terms, the order reaches the market without passing through a dealer's terminal first.

At present, the facility is largely limited to institutional investors. SEBI said improvements in trading systems and risk management tools have reduced many of the concerns that existed when the framework was first introduced.

The regulator has therefore proposed deleting the provision that states DMA is available only to institutional clients. If the proposal goes through, brokers could extend the facility to retail investors as well, while continuing to maintain risk checks and surveillance mechanisms.

Commodity Derivatives Segment Could Also See Changes

SEBI has proposed a similar change for exchange-traded commodity derivatives. Existing rules contain references to foreign portfolio investors (FPIs), who were permitted to use DMA in this segment in 2023.

The market regulator now wants exchanges to decide which investor categories can be offered DMA in commodity derivatives. According to the consultation paper, this would align the commodity derivatives framework with the approach followed in other market segments.

Another proposal seeks to remove the requirement that investment managers placing DMA orders on behalf of clients must be registered with SEBI. However, the client would remain responsible for the actions of the manager through contractual arrangements.

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What Are The Other Changes?

The regulator has proposed bringing together technology-related provisions applicable to exchanges, clearing corporations and depositories. A separate circular could be issued for common information technology requirements covering areas such as cybersecurity, disaster recovery, system audits and capacity planning.

Among the changes under consideration are mandatory two-factor authentication for system access, stronger firewall controls and network segregation measures. The paper also suggests replacing references to specific encryption standards with a broader requirement to use robust cryptographic technologies.

The proposals are open for public consultation, following which SEBI will take a view on the final framework.

Sources:

Business Standard

India Today