UT (Tax & Chancery) UT-2022-000134 UT-2022-000135 UT-2022-000137 - [2025] UKUT 00214 (TCC)

Mr Lopez was responsible for seeking to win this business in a very competitive market and with an information disadvantage compared to larger market makers. MHI only saw a small portion of medium-sized RFQs which were being sent by clients to market makers, and had rarely been successful in winning medium-sized RFQs.

Mr Creaturo had expressed his opinion in his report that the Anticipatory Hedging Strategy described by Mr Lopez appeared highly speculative and unsupported by the Desk’s usual client flow. Mr Jaffey’s cross-examination of Mr Creaturo focused on this opinion and the 93 RFQs.

The Tribunal makes the following findings in relation to the 93 RFQs:

Mr Jaffey put it to Mr Creaturo that there was a predictable pattern (of size, direction and duration), particularly from Banca d’Italia and that Mr Lopez would want to put himself in a position to provide a competitive price for these trades. Mr Creaturo accepted that he could see this backdrop to the client flows and that he could understand the concept of anticipatory hedging in this regard to try to get ahead of these flows, anticipate the next client trade and be properly positioned to meet it (although he did not accept that this was “pre-positioning” as that is generally with a specific order in mind). However, Mr Creaturo made clear that this acceptance of a predictable pattern was subject to caveats:

The Tribunal did have information as to the timing of these RFQs on the full list of Electronic RFQs received during the Relevant Period, but it was not set out on the list of 93 RFQs itself to which Mr Creaturo was taken during cross-examination. The Tribunal has identified that the RFQs sent by Banca d’Italia were generally received between 11.00 and 13.00. There were occasional outliers, eg at 10.10.53, 10.59.31, 13.24.04 and 13.33.21, but this range was apparent from the beginning of the Relevant Period, which would have been the data that Mr Lopez had available to him when he was starting to consider whether there were patterns.

Based on this evidence, the Tribunal finds that the RFQs the Desk received from Banca d’Italia were predictable in size, duration and direction, and that Banca d’Italia sent RFQs to MHI most days (and sometimes two or three times in a day), but there was a wide variation in the timing of these. We accept Mr Creaturo’s evidence that it is the timing of the next client trade that might justify the risk of taking a directional position, but each day Mr Lopez could not know if the next client trade is coming in five minutes, 15 minutes or an hour. There was no data supporting imminent client activity at any particular point in time, and in this situation it would be taking a speculative position in the market to take directional risk based on the possibility of these one, two or three RFQs per day.

The RFQs from Banca d’Italia represented about half of the 93 RFQs. Whilst Banco Popular also regularly sent RFQs of this size, the Tribunal is not satisfied that the fact that RFQs were received of this size nearly every day (none were received on 10 June 2016) of itself meant that it could be said there was any predictable pattern overall, particularly in a situation where not only the timing of the receipt could not be known but more importantly the direction of the potential client trade.