Upper Tribunal Tax and Chancery Chamber

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

Fecha: 31-Ene-2025

Approach to increasing the hit ratio and winning these RFQs

Approach to increasing the hit ratio and winning these RFQs

553.

Mr Lopez explained that he had identified predictable patterns of RFQs from key potential counterparties, and was seeking to pre-position himself to offer competitive prices and win this business. Mr Jaffey submitted that there were clear patterns, referring to Banca d’Italia (which sent an RFQ most days for MHI to sell €25m of bonds within a defined maturity range, often June 2026) and Banco Popular. These client orders would have required hedging with 200 to 400 lots.

554.

The Authority submitted that Mr Lopez’s alleged strategy for increasing the hit ratio was illogical. It was speculative and risky, and inconsistent with MHI’s position as a third-tier market-maker. Rather than improve Mr Lopez’s chances of winning client business, if one of these Large Orders had executed, there was every chance it would prejudice MHI from obtaining business by locking MHI into a directional position which meant it was not then able to stand ready to quote prices on both sides of the market in response to any client enquiries. It was, the Authority submitted, accordingly, unlikely that Mr Lopez was pursuing this strategy.

555.

Mr Shivji submitted that this strategy was more likely to undermine his ability to win more business than it was to advance it:

(1)

even as a matter of theory it would increase his directional risk, contrary to a market maker’s usual preference for staying flat. This would render him competitive only in one direction (even assuming the market had not moved against him) and lock him into that position for a material period of time.

(2)

The strategy was flawed in any event: even if Mr Lopez could somehow predict the direction in which he should position himself, by placing large, uniceberged orders on the Exchange, he was more likely to push the market away from him than he was to get his Large Order done.

556.

The Tribunal has the list of the 93 RFQs and the evidence of Mr Kasapis and Mr Creaturo (in respect of which Mr Jaffey submitted that Mr Creaturo had accepted that these RFQs were from regular clients with predictable size, direction and duration). Whilst the Authority’s submissions on the 93 RFQs were primarily focused on whether they could support a conclusion that they were “highly likely” for the purposes of the Mandate, the Tribunal has considered these submissions in the context of Mr Lopez’s evidence that he was predicting patterns and seeking to win this business and thus increase MHI’s hit ratio, alongside the Authority’s submissions as to the risks posed by the Large Orders and whether such a strategy could be effective.