The European Securities and Markets Authority (Esma), in conjunction with National Competent Authorities (NCAs), has launched a Common Supervisory Action (CSA) to evaluate the implementation of pre-trade controls (PTCs) by EU investment firms engaged in algorithmic trading.
The move follows the May 2022 flash crash, highlighting the need for stringent checks in algorithmic trading.
PTCs are critical for investment firms to prevent and limit erroneous orders from being executed in trading venues. The CSA aims to gather detailed insights into how these controls are being used across the EU.
The focus areas of the CSA include the implementation of PTCs, their calibration methodology, the establishment of credit and risk limits, monitoring and governance frameworks related to PTCs, and the implementation and monitoring of PTCs in cases of outsourcing trading activities to third countries.
The initiative is part of Esma’s efforts to ensure consistent application of EU rules and promote stable and orderly markets.
The regulations governing PTCs are outlined in MiFID II and CDR 2017/589 (RTS 6), specifying the organisational requirements for firms engaged in algorithmic trading.
Esma and NCAs plan to conduct the CSA throughout 2024.
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