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

Mr Lopez’s evidence was that he placed orders of 200 lots or more as anticipatory hedges, seeking to look ahead to likely client demand and position his trading book and inventory of bonds to service that demand. He had a particular focus on seeking to improve MHI’s success rate for RFQs for cash bonds in the range of €20-30m, and placed large orders at times when he considered it was highly likely that client interest would materialise and when there was a reasonable chance of such orders executing at a price that he considered represented good value. Pre-positioning in this way was, he considered, the way to enable him to offer competitive prices to clients.

Mr Lopez’s evidence was that he was specifically hired by Mr Heiberg to focus on RFQs of €20-30m, although he accepted that Mr Urra would also respond to RFQs of this size. Mr Lopez was seeking to identify and predict patterns of client flow – in particular, he said he identified that, most days in the Relevant Period, Banca d’Italia approached MHI with an RFQ for MHI to sell €25m nominal of bonds within a defined maturity range (often June 2026), and another client said to be predictable was Banco Popular. Mr Lopez produced a list of the 93 Electronic RFQs received by the Desk during the Relevant Period which would have required hedging with 200 lots or more of Futures (the “93 RFQs”).

A significant amount of his time was spent watching market movements and analysing where he considered resistance levels (ie upper price levels where he expected the market to turn down) and support levels (ie lower price levels where he expected the market to turn up) to be. He would keep in mind resistance and support levels from previous days when considering where he expected the market to go on any one day, as well as recent and upcoming news events, relevant RFQs and relevant auction dates. This would feed into his view, which he would constantly update, as to where he considered to be a good level to buy and sell.

Between 1 June and 10 June 2016, his VaR was very high, showing he had a higher risk appetite in this period, and during this time he placed anticipatory hedge orders of 300 and 400 lots (whereas, later in June, as the Brexit referendum (held on 23 June 2016) came nearer, and in July, 200 lot orders were more common as his risk appetite was lower). He considered orders of 200 lots to be below standard traded sizes in the BTP market at the time, which he estimated to be between €25-50m of ten-year BTPs (ie 250 to 500 lots).

Mr Lopez did not use the iceberg function for these orders. This was principally because he wanted to trade the full number of lots, and showing the full number of lots gave rise to the possibility that someone would hit the order and take it all. If he placed the order as an iceberg, every time a small and partial fill was completed, he would go to the back of the queue. This would make it less likely that the whole of the order would be filled. In contrast, he would iceberg his small hedging orders as he was happy for them to execute slowly (providing an opportunity for a client cash trade to come the other way), and this also allowed him the opportunity to amend the price.

He typically placed his anticipatory hedge orders several ticks away from the touch; he wished to pre-position at an attractive price, which he expected would enable him to meet client orders on an attractive and profitable basis.

On Mr Lopez’s strategy, the Large Orders and the Small Orders within an Instance were unconnected. He had placed a total of 1,139 small orders during the Relevant Period.