A Study on the ELW Market by Investor Types: Focused on DMA System

Abstract

This paper focuses on the controversy about DMA (direct market access) system that facilitates ELW (equity linked warrants) transaction. We analyze trading profit/loss and such features in accordance with the investor type by the combination of trading counts and trading amounts. Especially, our analysis centers on whether brokerages’ providing DMA system contributes to the market expansion and DMA system serves as a profit-making expedient for the investors whose trading amount is large or trading frequency is high. Based on our empirical examination utilizing total ELW trading data from 2009 to 2011, the following implications are obtained as a result: Firstly, the growth of the ELW market mainly comes from the increased transactions by the investors accessing via DMA and there is no evidence that providing DMA system itself adds to the revitalization of overall market. Secondly, our GMM results using dummy variables confirm us that providing DMA possibly plays a critical role in making profit for the investor of large trading amount or high trading frequency. Our results support the structural problem is embedded in ELW market and DMA system intensifies such unfair game.