CL-2018-000297, CL-2018-000404, CL-2018-000590, - [2025] EWHC 2364 (Comm)

The numbers in brackets identify the number of parties in each category. Thus:

Mr Shah acknowledged in his explanatory slides that “all depot positions and cash balances being zero at the start and end of trading (ie not “creating” or “destroying” money or shares) … accounts held by [the custodian, C4] with its sub-custodians therefore showed no balances.” Putting it more plainly, this was share trading by parties with neither shares nor money, settled at a custodian with neither shares nor money, by and through which neither shares nor money ever changed hands. (I put to one side the possible view, on the cash side, that in some sense money moved because simultaneous matched debit and credit entries in B’s cash account at C4 constituted or evidenced equal and opposite debts owed between B and C4 that instantly discharged each other (likewise for V and for L). No such argument could affect the conclusion that there were no shareholdings.)

All of the trading models involved activity materially similar, for my purposes, to that of B, V, L and C4 described above, in which (a) the equity purchase by B was cum-ex, (b) none of B, V, L or C4 ever held or transferred any shares, and (c) trades were settled internally at C4 by the share-less settlement loop method explained above. In fact, in every case, the cum-ex purchase was traded on the dividend declaration date for settlement on the dividend payment date, one business day after the record date for the dividend in question.

To be clear, I do not say that internalised settlement at a custodian necessarily means that no shares are ever held or transferred, only that internalised settlement was always used in this case in such a way that that was true. Messrs Jain, Godson and Fletcher argued that if the equity trades settled, there must have been a transfer of shareholdings between the parties. That is a false logic. A buyer who knew only that, according to its custodian, its share purchase had settled, might assume that a holding of shares had been transferred to it, especially if the buyer understood the custodian to be (as Messrs Jain, Godson and Fletcher put it) ‘plumbed in’ to the system for holding dematerialised shares via chains of custody; but that is a different point. Messrs Jain, Godson and Fletcher went on to submit that they never agreed to internalised settlement with no transfer of any shareholding, delivery versus payment. I agree with them, as indeed SKAT also submitted, that none of the written terms of business entered into between custodians and trading participants entitled the custodians to settle trades by the share-less internalised method in fact used. I also accept Messrs Jain, Godson and Fletcher’s case that nor was the share-less settlement method that was used ever agreed to by them in some other way. But whether it was or was not agreed to by all concerned, it was the method used in fact, with the result that no shareholding was ever acquired by the equity buyer.