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

Conclusions on the Anticipatory Hedging Strategy

Conclusions on the Anticipatory Hedging Strategy

614.

We accept that Mr Lopez was seeking to win more €20-30m RFQs, and that to do this he would need to offer competitive pricing. A strategy of anticipatory hedging would make sense, on the assumption that there is a predictable pattern of RFQs (with a predictable size, direction and time) and this would not hinder the Desk’s other activities. In this context, we can accept that orders of 200 lots were targeted at this size of RFQ, and were of a size that were within the Desk’s risk limits. This is a strategy which could explain not only the Large Orders in the Instance Pool, but also the Non-Instance large orders (including the Lone Large Orders).

615.

We have the following key difficulties:

(1)

The pattern of RFQs was not as predictable as Mr Lopez or Mr Jaffey tried to make out, nor as predictable as Mr Lopez needed it to be to ensure that he was not holding a directional position (with the associated risk) for a period of time which both ran the risk of going underwater and precluded him from quoting competitively in both directions in the meantime.

(2)

This cannot explain the Large Orders that were placed late in the day.

(3)

Mr Lopez’s explanation was that the timing of cancellation could be explained by reference to market movements, ie the market moved away and the desired push-back was not going to happen promptly or market news. We recognise that he does not have access to all the information that would have been available to him at the time. The difficulty is that Mr Lopez, an experienced trader, is saying that every single time he placed a large order the market moved against him and yet he did not change his approach to try to get some of his Futures order done as an anticipatory hedge, in circumstances where he did act to buy cash bonds to take an anticipatory position.

(4)

There is a repeated, obvious, and striking pattern of coincidence of the timing of the cancellation of the Large Orders shortly after the Small Order filled.