Pre-trade controls for algorithmic trading techniques| PwC Switzerland

Partner Legal, PwC Switzerland

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Partner, Head Asset & Wealth Management and Banking Regulatory, Legal, PwC Switzerland

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Just recently, ESMA launched an interesting Common Supervisory Action (CSA) on the implementation of pre-trade controls by EU investment firms using algorithmic trading techniques.

By way of background, after the flash crash in May 2022 ESMA and National Competent Authorities (NCAs) gathered evidence on the implementation of PTCs in the EU through questionnaires submitted to a sample of EU investment firms.

As a follow up ESMA and NCAs have decided to launch a CSA, with the goal of gathering additional and more detailed insights into how firms are using pre-trade controls across the EU.

More specifically, the CSA will cover the following aspects:

The implementation of PTCs, including their calibration methodology and the use of hard and soft blocks in the design of PTCs;
Establishment of credit and risk limits and their interaction with PTCs;
Monitoring and governance framework related to PTCs;
Implementation and monitoring of PTCs in case of outsourcing of trading activity to third countries.

This initiative, and the related sharing of practices across NCAs, aim at ensuring consistent application of EU rules as well as helping to promote stable and orderly markets in line with ESMA’s objectives. The rules governing the use of PTCs are set out in MiFID II and more specifically in CDR 2017/589 (RTS 6), which specifies the organisational requirements of investment firms engaged in algorithmic trading.

The CSA will be launched during the course of 2024.

Are you interested in reviewing your current PTCs?
Please contact one of our experts.