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

The premise is that Mr Urra and Mr Sheth were testing whether clients were splitting orders. However, the approach they both adopted was not consistent in respect of each client and does not reflect the status of the particular clients (including their size, whether they were brokers or clearers and whether they would send multiple RFQs to MHI).

For the Specified Instances for both Mr Urra and Mr Sheth, Mr Kasapis had sought to identify whether there was an executed cash bond order or RFQ within close proximity to the Instance. For five of the ten Specified Instances for Mr Urra, Mr Kasapis had identified cash trades which could have prompted Mr Urra to speculate that a Large Order might be tempting to a Posited Trader. Mr Urra agreed that three of these appeared to be plausible matches, one was not and he had doubts about another:

Mr Urra thus accepted, and we agree, that it would not necessarily make sense to test this theory against all clients. Mr Urra agreed that he would not have been testing his theory against an RFQ from Banca Popolare in F47. However, the decision to test the strategy in respect of ICBC, CM Capital Markets and Sigma, and Mr Sheth’s decision to test the strategy in relation to Method Investments and Advisors (“Method Investments”), raise significant questions about their approaches.

Mr Urra agreed that he may have been testing the strategy in respect of ICBC (in F7). Mr Sheth said he had been using the strategy against ICBC in F67 on 16 June 2016, F125 on 23 June 2016 and F158 on 28 June 2016; and in one of his Lone Large Orders on 28 June 2016. It is clear from the list of cash trades executed in the Relevant Period that ICBC was a regular client of MHI’s - there were 66 voice trades with them over the Relevant Period, and they would often come more than once in a day. This could be seen on the following dates:

Mr Sheth had placed a Large Order in F82 at 10.43.48 on 20 June 2016, but did not place a large order during this interval where he was trading with ICBC – his next large order was placed at 11.15.33 (which was a Large Order during F83), and was placed shortly after he placed a Small Order of 50 lots.

The Tribunal agrees with the Authority’s submission that Mr Sheth’s large orders do not correlate with his trading with ICBC; but do bear a greater correlation with placing a small order in the opposite direction (even taking account of the number of Lone Large Orders placed by Mr Sheth).

Furthermore, Mr Urra and Mr Sheth were both purportedly using the strategy against someone who regularly gave them repeat business, sometimes during a single day. This means that if the Large Order had traded, they would be positioned against that client’s flow. In addition, ICBC was a clearer for smaller financial institutions; so the Desk would not have known the identity of the underlying client on any occasion, and ICBC could have been acting for a different underlying client when it next approached MHI.

Mr Urra and Mr Sheth both said they may have been testing the strategy against other brokers or clearers - CM Capital Markets (Mr Urra in F12), Sigma (Mr Urra in F150, Mr Sheth in F176), Tullett (Mr Urra in F152). Yet, the Desk would not have known the identity of the underlying client, which may be different each time the clearer sent an RFQ.

Mr Sheth’s evidence was that Method Investments triggered the use of the strategy in F103 (an RFQ that traded away), and two of the Lone Large Orders (on 21 and 28 June 2016). Method Investments sent regular RFQs to MHI, but the average size was less than €600,000, generally with shorter maturities. The RFQ Mr Sheth identified for the Lone Large Order on 28 June 2016 was a €1.3m cash bond of 4.5 years, which would have required about two lots to hedge. The Lone Large Order was 500 lots. For bonds of this maturity, Method Investments would have needed to place more than €300m elsewhere with another single market maker. This seems incredibly unlikely in principle and Mr Sheth did not explain how he possibly thought this could be the case.

At the other end of the scale, for the Large Order in F153 Mr Sheth identified a cash trade where MHI sold €500,000 of a 15-year bond to Societe Generale (“SocGen”), and considered this had prompted him to deploy the strategy. Yet SocGen was a primary dealer and would be likely to be dealing elsewhere; the Large Order placed was sized for 100 times the size shown to MHI.

The Tribunal recognises that the absence of Voice RFQs and Bloomberg/Chat RFQs has contributed to the difficulty for Mr Urra and Mr Sheth of identifying now the triggers for the use of the Information Discovery Strategy (although in the context of Mr Urra’s Specified Instances, this exercise had been conducted by Mr Kasapis and not Mr Urra). They did have the data for all of the executed trades where MHI won an RFQ (in whatever form it had been submitted). However, we have set out our concerns above in relation to Mr Urra’s and Mr Sheth’s apparently illogical and inconsistent decisions in relation to ICBC, CM Capital Markets, Sigma and Method Investments. These were identified as the potential triggers in several Instances; and even if this reconstruction is not accurate for particular Instances, they gave clear evidence that they would have been testing their theory against these clients.