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

The Authority issued Decision Notices to each of the Traders on 31 October 2022.

Whilst the Authority relied on a different number of Instances for each Trader, the basis of the Authority’s decision was the same for each Trader, being that:

The Authority considered that the conduct of each Trader in deliberately engaging in market manipulation was dishonest and lacked integrity. This dishonest conduct was highly likely adversely to impact other market participants and was repeated many times over a period of two months. As a result, they were each not a fit and proper person to perform any function in relation to any regulated activity carried out by an authorised person, exempt person or exempt professional firm.

The Authority decided to make orders prohibiting each of the Traders from performing any function in relation to any regulated activity carried on by an authorised person, exempt person or exempt professional firm, and imposed penalties on each of them: £395,500 on Mr Urra, £100,000 on Mr Lopez and £100,000 on Mr Sheth.

The Authority’s amended statements of case for each Trader are dated 6 December 2024 (together, the “Amended Statements of Case”) and are substantially similar to each other, in that the Authority relies on the same features as supporting its allegations of an abusive trading strategy in respect of the Large Orders in the Instance Pool and then identifies the number of occasions on which each Trader is alleged to have committed market abuse.

The number of occasions on which each Trader is alleged to have committed market abuse, and the number of Large Orders they placed on which the Authority relies are as follows:

The Amended Statements of Case proceed by identifying the “Facts and Matters relied upon by the Authority” and starts by setting out matters under the sub-headings of “The BTP and BTP Futures Market”, “The EGB Desk and its Mandate”, “BTP Trading and the EGB Desk’s process”, “Trader Remuneration” and “Training and Awareness of Market Abuse”. The Amended Statement of Case in respect of Mr Urra’s reference then sets out the following:

“Abusive Trading Strategy

58.

During the Relevant Period, Mr Urra undertook an abusive trading strategy, both alone, and in collaboration with Mr Lopez and/or Mr Sheth. The abusive strategy involved placing orders for the purpose of giving the false or misleading impression and/or signal that the Traders wanted to buy or sell a specified number of BTP Futures lots (the “Misleading Orders”), when in fact the Traders did not intend to trade these orders, but instead intended or hoped to facilitate the execution of other genuine orders on the opposite side of the order book (the “Genuine Orders”). Misleading Orders which appeared to increase supply would encourage other market participants who wanted to sell to cross the spread and trade with existing buy orders in anticipation of the market moving lower (and vice versa for Misleading Orders which appeared to increase demand and might prompt the market to move higher).

…

61.

That the trading carried out by Mr Urra (alone or in collaboration with Mr Sheth and/or Mr Lopez) gave or was likely to give a false or misleading impression and/or signal as to the supply of, demand for, or price of, BTP Futures, and was therefore abusive, is to be inferred from one or more of the following features:

61.1

The Misleading Orders were orders of BTP Futures showing 200 lots or more on the Exchange (“Large Orders”). Large Orders were rarely placed on the Exchange (see further paragraph 63.1 below) and were large compared to the Genuine Orders. They therefore gave or were likely to give an impression and/or signal of significant supply/demand to other market participants on the opposite side of the order book from the Genuine Orders.

61.2

None of the Misleading Orders were placed as Iceberg Orders, whereas some of the Genuine Orders (despite typically being significantly smaller) were placed as Iceberg Orders. By showing the full size of the Misleading Orders, this gave or was likely to give an impression and/or signal of significant supply/demand to other market participants on the opposite side of the order book from the Genuine Orders.

61.3

The vast majority of Misleading Orders were placed near enough to the Best Bid or Best Offer to be visible to other market participants (and thereby increase the pressure on the order book) but not so close that they were likely to be traded.

61.4

None of the Misleading Orders fully executed, and only 3 partly executed. In those 3 cases, only a very small minority of the order traded (under 10%) before being cancelled. Moreover, in each instance where the Misleading Orders began to trade, they were cancelled under 10 seconds later. By contrast, in each trading instance particularised in Amended Annex I, the Genuine Orders together mostly or fully executed prior to the cancellation of the Misleading Orders; the overall execution rate across the total volume of Genuine Orders before the cancellation of the Misleading Orders was 95%.

61.5

The Misleading Orders always overlapped with at least one Genuine Order on the other side of the book. Save for one instance, the last Misleading Order(s) on the order book in a particular instance were cancelled after the majority of the Genuine Order had filled, on average 5 seconds after.

61.6

The Traders have not matched executed BTP trades or RFQs against the placing of their Misleading Orders in the BTP Futures market.

61.7

The volumes of the Misleading Orders were particularly large sizes, frequently placed in round numbers and/or repeated numbers of lots. Of the 36 Misleading Orders placed by Mr Urra acting individually across 31 instances, for example, 13 were lots of 444, 9 were lots of 450, 5 were lots of 490, and 3 were lots of 400. It is inherently unlikely when placing genuine orders for hedging purposes that there would be so many identical orders, since market-makers will seek to hedge the precise residual risk on their books from time to time.

61.8

The Misleading Orders were not netted off against the Genuine Orders on the other side of the book (for example, if the Genuine Order was to buy 10 lots and the Misleading Order was to sell 500 lots, they could have placed a sell order of 490 lots, but did not do so). It was more costly to trade on both sides than to net off, and in addition there was potential additional risk from movements in the price from failing to net off.

61.9

The volume and repeated pattern of these types of orders over the Relevant Period by all the Traders (alone and in conjunction with one another) indicates a deliberate strategy.

62.

In relation to each of the occasions where Mr Urra is averred to have carried out the strategy in collaboration with Mr Lopez and/or Mr Sheth…, it is inferred from the contemporaneous activity of the other Traders in each of the instances specified and the matters pleaded at paragraph 55 above that they were working together to a common strategy.

63.

That the Traders’ conduct was abusive is also to be inferred by comparing their behaviour with the trading and order placement of BTP Futures on the Exchange by other market participants during the Relevant Period. The former was markedly different from the latter:

63.1

Large Orders of BTP Futures were rarely placed on the Exchange by other market participants. Including MHI, 47 market participants placed Large Orders during the Relevant Period, accounting for 0.02% of the total number of orders placed on the Exchange during the Relevant Period.

63.2

Despite MHI being a small market player, trading less than 0.43% of the total traded volume of BTP Futures, the Traders placed more Large Orders than any of the other market participants and accounted for 23.24% of the total volume of Large Orders placed across the Relevant Period. However, the Traders rarely executed BTP trades or received client orders in BTPs that they could have wanted to hedge with these Large Orders.

63.3

While … the Traders placed significantly more Large Orders than other market participants, they had much lower execution rates of their Large Orders. The Traders partially or fully executed only 1.5% of their Large Orders, cancelling 98.5% without them having begun to execute (Mr Urra himself executed 0.8% of the total volume of Large Orders that he placed). By comparison, other market participants partially, or fully executed 72.28% of their Large Orders, cancelling only 27.72% of their Large Orders without them having begun to execute. It would likely have been possible for the Traders to execute a larger proportion of their Large Orders if it had been their intention for them to execute.

63.4

When the Traders placed Large Orders, they rarely priced them competitively, placing only 1.93% of them at the Best Bid or Best Offer price. In contrast, other market participants placed 80.34% of their Large Orders at Best Bid or Best Offer prices, or at improved prices. By placing their Large Orders away from the Best Bid or Best Offer price, the Traders were less likely to execute them.

…”

We refer to the features set out by the Authority at [61] in its Amended Statement of Case above as the “Criteria”. These Criteria were used by the Authority to identify the Instance Pool from the totality of the trading activity of the Traders during the Relevant Period.

The Authority then disputes the explanation provided by Mr Urra for his trading strategy pleading that it is “inherently improbable” and particularises its case using F150 as an example of a Single Trader Instance, and F31 and F209 as Multi Trader Instances before then setting out its position on the alleged breaches:

“Section 118 of FSMA

…

104.

The Misleading Orders were not placed for legitimate reasons, nor did they conform with accepted market practice. In placing the Misleading Orders, Mr Urra gave or was likely to give a false or misleading impression as to the supply of, or demand for, the BTP Futures to which the Misleading Orders related. This was because in placing the Misleading Orders, Mr Urra signalled that he wanted to buy or sell a specified number of BTP Futures. In fact, he did not wish to trade in that manner and the purpose of placing the Misleading Orders was to facilitate the execution of Genuine Orders at a more advantageous price, or on a more timely basis, than would otherwise have been achieved but for his having misled other market participants by the Misleading Orders.

…

Articles 12 and 15 of the Market Abuse Regulation

…

107.

Mr Urra’s misleading orders were not placed for legitimate reasons, nor did they conform with an accepted market practice as established in accordance with Article 13 of the Market Abuse Regulation. In placing the Misleading Orders (alone or in concert with Mr Lopez and/or Mr Sheth), Mr Urra gave or was likely to give a false or misleading signal as to the supply of, or demand for, the BTP Futures to which the Misleading Orders related. This was because in placing the Misleading Orders (alone or in concert with Mr Lopez and/or Mr Sheth), Mr Urra signalled that he wanted to buy or sell a specified number of BTP Futures. In fact, he did not wish to trade in that manner and the purpose of placing the Misleading Orders was to facilitate the execution of Genuine Orders at a more advantageous price, or on a more timely basis, than would otherwise have been achieved but for his having misled other market participants by the Misleading Orders.

…

Fitness and Propriety

109.

Mr Urra’s conduct in deliberately engaging in market manipulation was dishonest and lacked integrity. This dishonest conduct was highly likely to adversely impact other market participants and was repeated many times over a period of two months. As a result, he is not a fit and proper person to perform any function in relation to any regulated activity carried out by any authorised person, exempt person or exempt professional firm.”

The Authority has pleaded its case on a substantially similar basis in respect of Mr Lopez and Mr Sheth, and in particular has relied on the Criteria and the comparison with trading and order placement by other market participants. In its Amended Statements of Case for Mr Lopez and Mr Sheth the Authority has used examples of Instances relevant to each Trader. We do not set those out here.

In addition to the number of Instances relied upon against each Trader, the only point of substantive difference in the Authority’s decision and pleadings relates to Mr Sheth, who had placed multiple concurrent Large Orders on the same side in some of the Instances (the “Multiple Large Orders”). The Authority alleged that each of these are Large Orders and its Amended Statement of Case in respect of Mr Sheth, having said his explanation for his trading strategy is “inherently improbable” sets out the following:

“64.

…Mr Sheth has also suggested that in some cases, where he placed multiple, overlapping Large Orders, these were in fact intended to be amendments to an existing Large Order. Whether or not this is true does not affect the Authority’s assessment of the purpose of the placement of a Large Order on the opposite side of the order book to a small order.”

The 233 Instances have been set out in Annex 1 to the Amended Statements of Case as lists of the trading activity which occurred in each Instance (this Annex being the same for each Trader, albeit that the Authority does not rely on each Instance against each Trader).

Whilst the Authority has amended its statements of case since they were first served on 24 February 2023, and significant changes have been made to the level of detail provided in relation to the specific trading activity relied upon, the allegations set out above, in particular as to an “abusive trading strategy”, “deliberately engaging in market manipulation” and “dishonest and lacked integrity” have been pleaded throughout.

The Authority has further particularised its case since it first served its statements of case, and, since February 2024, has particularised each of the Instances. We have set out in Appendix 2 the Authority’s particularisation of one instance (F7, the first Specified Instance) to illustrate the data provided (but it should be noted that the narrative was only provided for the “Specified Instances”, namely those Instances which the Authority was directed by the Tribunal in June 2024 to identify to the Traders before the hearing and on which it would cross-examine the Traders). Appendix 2 also includes the daily price graph, Electronic RFQs submitted to the Desk and the executed cash bond transactions for that day, 7 June 2016.

By way of further explanation, for each Instance the Authority provided: