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

There is a notably high rate of cancellation in the Large Orders. 338 out of 341 Large Orders did not trade at all; three orders (all placed by Mr Urra) partly traded but were then moved away from the touch and/or cancelled so that they could not trade in full.

Despite the Large Orders being large for this particular market, none of the Large Orders were iceberged. This is the opposite to what he would expect if there was a genuine intention to trade the Large Orders.

The pricing of the Large Orders, having regard to their size, was unusual in this market, as they were nearly all placed away from the touch and nearly all kept away from the touch, which made them unlikely to trade. The Traders placed 1.93% of their Large Orders at or better than the touch; other market participants placed 80.34% of their Large Orders at or better than the touch.

The size of the Large Orders was inconsistent with MHI’s status as a lower tier market maker that did not engage in proprietary trading and considering the usual size and number of RFQs it received.

The overlap between the Large Orders and the Traders’ Small Orders on the opposite side of the book was unusual. Where traders need to deal with two orders, he would generally expect the priority order to be dealt with first, or for the orders to be netted.

The repeated pattern of the last Large Order being cancelled once the Small Order has traded in full (or nearly traded in full) cannot, in his view, have been a coincidence. The frequency of the overlap and the timing of cancellation suggests to him a deliberate design. His evidence was that it is the proximity in timing of the Small Orders trading and the Large Orders being cancelled that in his opinion is “particularly powerful” in showing that the Large Orders were a function of the Small Orders.

F7 (Mr Urra) – The Small Order had been filling, but this paused for more than ten seconds. The Large Order was placed, and the Small Order started to fill within 0.2 seconds.

F31 (Multi Trader Instance) – Mr Urra’s Small Order was live for more than 11 seconds. Mr Urra placed a Large Order, and made several price amendments towards the touch and away again. Mr Lopez then placed a Large Order and the price of the Small Order was amended closer to the touch. Mr Urra then made further price amendments to his Large Order, towards the touch and away again, then back towards the touch, and within this time Mr Lopez also amended the price of his Large Order closer to the touch. Mr Urra’s Small Order started to fill, and during that 2.5 seconds in which it was part filling in slices there were no price amendments to the Large Orders. Trading in the Small Order paused for more than 3.5 seconds, the price of the Small Order was amended, there were further price amendments to Mr Urra’s Large Order towards the touch and the Small Order started to trade again.

F42 (Mr Lopez) – The Small Order had been live for more than 28 seconds, more than half of which at its amended price, and did not fill. The Large Order was placed and the Small Order started to fill within 0.7 seconds.

F56 (Mr Lopez) – The Small Order was live for more than 12 seconds without filling. It started to fill within 0.2 seconds of the Large Order being placed.

F60 (Mr Urra) – The Small Order was live for more than nine seconds without trading. The Large Order was placed and the Small Order started to fill within 0.3 seconds.

F103 (Mr Sheth) – The Small Order was live for more than one minute 26 seconds without filling, more than half of which at an amended price. The Large Order was placed and then cancelled after more than nine seconds. The price of the Small Order was amended. A second Large Order was placed and then, after four seconds, a third Large Order was placed, closer to the touch. The Small Order filled within 0.2 seconds of that third Large Order being placed.

F150 (Mr Urra) – The Small Order had started to fill, but this paused for more than seven seconds. The Large Order was placed and the Small Order started to fill within 0.1 seconds.

The size of the Large Orders was part of the Information Discovery Strategy – showing volume was part of what was intended to make the orders attractive.

This required that the Large Orders were not iceberged – the process of each slice being placed at the same price but at the back of the queue may slow execution; and the strategy requires that you show the full volume available to tempt a Posited Trader into paying a premium to offload their risk in one go.

They were seeking to trade at an advantageous price, in the belief that the Posited Trader would be willing to pay a premium to transact at volume, and Mr Creaturo had accepted in principle that there is nothing wrong with placing an order away from the touch. Further, orders at the touch would be attractive and accessible to all, and would have reduced the informational value gleaned if the order were filled; placing away from the touch offered the trader the opportunity to create a profitable position.

Cancellations were very common in the market, and it was inherent in the strategy that the Posited Trader might not exist in which case it was highly unlikely that the Large Order would be filled at the price or volume at which it was placed. Three of Mr Urra’s Large Orders traded in part, and one is a Specified Instanced, F30. The cancellation is consistent with the strategy – Mr Urra wanted a Posited Trader to aggress the market; it was counterproductive to trade slowly on the back of a more general market movement.

The placing of the Small Orders and the Large Orders may have been prompted by the same client trade, which would explain their relative proximity or overlap. The correlation in timing of the Small Order filling and the Large Order being cancelled does not necessarily imply causation – an underlying event, such as the market ticking up, may have caused the Small Order to fill and prompted the Trader to cancel the Large Order. In addition, both Mr Urra and Mr Sheth had placed Lone Large Orders.

The Large Orders were not hedges for an executed cash trade. Where no RFQ has been identified, the Large Order may have been prompted by other market events or information that is no longer available.

Mr Urra and Mr Sheth didn’t know how many lots a Posited Trader would be looking to trade (with Mr Sheth referring to this as a “strategy of discovery”); they simply needed to ensure the order was sufficiently large. Round numbers fit with this.

The orders served distinct strategic purposes – the Small Orders were typically a hedge for a client trade, and the purpose of the Large Order was to provide an opportunity for MHI to trade at favourable prices. It would have been illogical and commercially counterproductive to net the orders against each other.

The Traders agreed they deliberately deployed the strategy repeatedly. Mr Sheth had also adjusted his approach after speaking to Mr Urra about his frustration with the strategy not working, by amending the price of the Large Orders and moving them closer to the touch. Both Mr Urra and Mr Sheth decreased their use of the strategy when it did not seem to be working.

The average size of Mr Lopez’s Large Orders was noticeably smaller than those placed by Mr Urra and Mr Sheth. The size of 200 lots was chosen by reference to the size of RFQs he expected to and did receive and was within his risk limits, so he was able to keep the hedge, including overnight.

Mr Lopez would iceberg an order to allow him to execute slowly and adjust the price during execution. For the Large Orders, he wanted them to execute, and to execute in full, at a competitive price that may only be available during a very brief pull-back in pricing.

Mr Lopez was seeking to place anticipatory hedges at very precise levels where he thought there might be interest, and placed them at a price where he thought he could be aggressed and the orders could trade at a competitive price.

The pricing of the orders meant that the orders were less likely to trade; this also reflected the information disadvantage faced by the Traders and Mr Lopez’s cautious approach.

Mr Lopez was often doing a number of things at the same time; he placed 1,139 small orders in the Relevant Period and it is not surprising that some of them overlapped. The Small Orders and the Large Orders were not connected.

The Large Orders were not hedges for executed cash trades. They were placed in anticipation of future RFQs which Mr Lopez predicted would be received by the Desk.

The number of lots, usually 200, was based on the predicted size of the RFQs Mr Lopez expected to receive, and was a hedge for medium-sized RFQs.

Netting would make no sense. The Small Orders were a hedge for his book; the Large Orders were trying to capture a price advantage.

Mr Lopez deliberately and repeatedly deployed his strategy. It is accepted that none of his Large Orders traded.

Mr Urra’s and Mr Sheth’s position that they needed to show the size of their Large Order to the market (which goes to both the number of lots used and to the decision not to iceberg their orders) – in a market in which all participants knew that there would be invisible liquidity as a result of iceberging, and therefore that there was likely to be more available at the touch than was visible, they gave no explanation as to why a participant who wanted to buy in size would not place an order in size at the price they were prepared to pay and see how much of that traded through the stack. If such other participant did indeed need to hedge, or were interested in trading at that level, they could see how much they could get done at that level. The orders placed by Mr Urra and Mr Sheth did not need to be visible for the Posited Trader to do this;

Mr Lopez’s decision not to iceberg his orders; and

the coincidence in timing between the Small Orders and the Large Orders (which primarily goes to the proximity between the Small Order being filled and the cancellation of the Large Order for all Traders, and the fact of the overlap between the Small Orders and Large Orders for Mr Lopez).