Asset managers in the EU using algorithmic trading tools are set to face more scrutiny of their pre-trade controls (PTCs).

The securities regulator Esma (European Securities and Markets Authority), with the National Competent Authorities, has launched a Common Supervisory Action (CSA) on the issue.

The intention is to assess the implementation of PTCs used by firms to prevent the wrong orders from going out to execution venues.

The rules concerning the use of PTCs are set out in MiFID II, under CDR 2017/589 (RTS 6.

Esma has been gathering evidence on the use of PTCs in the wake of the flash crash in May 2022 when an error from a Citigroup trader led trading to be briefly suspended in a number of European markets.

According to Esma, the CSA will focus on its implementation, credit and risk limits, governance frameworks and the monitoring of PTCs when trading in third countries is outsourced.

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