The Made in Denmark champion looked in complete control when he sank three birdies in four holes from the 11th to set the clubhouse target at 11-under overall at the halfway stage.
A win on Sunday could make Wallace the 14th player to win four events in a single European Tour season and the first since Alex Noren in 2016.
"I'm playing with freedom now and trying to place as high as I possibly can come the back nine holes on Sunday," Wallace said.
"That's when I normally will try and kick in and want to win a tournament, depending on where I am.
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"I've been in this situation before, just not in this sort of tournament. The best players are out there in the world and I just want to compete and see where my game is at against them."
Fleetwood's hopes of finishing at the top of the European Tour's money list were bolstered with a round of 67, which saw him move up to tied sixth on the leaderboard alongside former world number one Rory McIlroy.
Race To Dubai leader Francesco Molinari stumbled home with three bogeys on the back nine to sign for a 73, leaving the Italian eight shots off the lead.
British Open champion Molinari will secure the Race to Dubai title if he finishes in a two-way tie for fifth or better this weekend, while Fleetwood must win the title to have any chance of defending his season-long European crown.
England's Danny Willett started the day with a dropped shot but four straight birdies from the sixth ensured he finished with 67 to move up to second spot at 10-under alongside compatriot Smith and Spaniard Otaegui.
Otaegui was another player to start with a bogey but recovered well for his 68, which was matched by Smith following a mixed round.
(Reporting by Hardik Vyas in Bengaluru; Editing by Toby Davis)
