Sponsored Access
Sponsored Access is a form of market access in which a registered broker provides a client — typically a proprietary trading firm or hedge fund — with the broker's exchange membership credentials to submit orders directly to the exchange, with the broker bearing regulatory responsibility for those orders.
Sponsored Access extends the concept of Direct Market Access by allowing clients to connect to an exchange using the broker's member ID, effectively acting as if they were the broker for order-routing purposes. The client's orders bear the broker's identification in the exchange's systems, making the broker the counterparty of record and, crucially, responsible for the conduct of those orders under exchange rules and SEBI regulations.
The key structural difference from DMA is connectivity architecture. Under conventional DMA, the client's orders pass through the broker's own systems, where pre-trade risk controls are applied, before reaching the exchange. Under some Sponsored Access models — particularly 'naked' or 'unfiltered' sponsored access — client orders may theoretically bypass the broker's systems entirely, connecting to the exchange directly via the broker's membership credentials. This creates a risk management gap: the broker is responsible for orders it may not have reviewed before they entered the market.
Following the 2010 US Flash Crash, which was partly attributed to high-frequency trading activity enabled by naked sponsored access, regulators worldwide mandated minimum risk control standards for all sponsored access arrangements. SEBI's algo trading and risk management circulars, particularly those issued from 2013 onwards, require brokers providing sponsored access to maintain adequate pre-trade and post-trade risk controls regardless of whether the order passes through the broker's own systems.
The controls required include position limits, order rate limits (to prevent erroneous mass-order entry), price deviation checks, and kill switch capabilities that can halt all orders from a sponsored participant instantaneously. SEBI's framework also requires the sponsoring broker to conduct periodic reviews of the sponsored participant's risk management practices and to maintain audit trails of all orders submitted.
In India, Sponsored Access is primarily used by proprietary trading firms and algorithmic trading entities that have developed their own execution technology but do not hold exchange membership themselves. The model allows them to leverage the broker's existing exchange connectivity and regulatory relationships while deploying their own strategies. Brokers typically charge access fees and impose minimum activity thresholds in addition to standard brokerage commissions.