ESMA, the pan-European financial regulator, have announced (click here) that they will be working with National Competent Authorities (NCAs) across the EU to assess the implementation of pre-trade controls implemented by regulated entities for their Algo trading activities under MiFID2. The Common Supervisory Action (CSA) will assess how pre-trade controls have been implemented and calibrated, the monitoring and governance frameworks established around pre-trade controls including where such controls have been outsourced. They will also examine how these pre-trade controls align and interact with market and credit risk limits.
MiFID-regulated energy and commodity trading firms, while not the central focus of the review, are also not exempt from it and are advised to have their governance and controls around regulated Algo-trading activities in order. With one eye on the REMIT2 rules around Algo trading expected to land in the near future, energy and commodity firms should consider now what common internal control standards around financial and physical algo trading should look like as algo trading activity in the sector continues to ramp up.
