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

Evaluation – Whether traders committed market Abuse

Evaluation – Whether traders committed market Abuse

394.

The Authority’s pleaded case on market abuse is that the Large Orders were not placed for legitimate reasons, and in placing the Large Orders the Traders gave or were likely to give a false or misleading impression and/or signal as to the supply of, or demand for, the Futures to which the Large Order related; and that the Traders did not wish to trade the Large Orders and the purpose of placing them was to facilitate the execution of the Small Orders at a more advantageous price, or on a more timely basis, than would otherwise have been achieved. The Authority relied on inferences which it submitted can be drawn from both the Criteria being met and from comparing the behaviour of the Traders with that of other market participants during the Relevant Period.

395.

According to the Authority’s case, the Traders were spoofing, a practice which is agreed to be abusive, and both the Information Discovery Strategy and the Anticipatory Hedging Strategy were said to be fabrications or inventions created after-the-event to fit the facts that we do know about. Mr Shivji submitted that each Trader says they developed their new Trading Strategy at roughly the same time, following Mr Heiberg’s setting of a hit ratio. Mr Urra and Mr Lopez developed different strategies in isolation from each other, with Mr Lopez saying that he had not heard of the Information Discovery Strategy before the Eurex Letter. The strategies said to be being pursued are not the same, with even Mr Urra and Mr Sheth now describing their strategies in closing as “similar”. The Mandate required that they be approved, yet none were. All were outside the scope of market making, and were not used by other market makers. They were deployed independently. They did not result in a successful trade. Mr Lopez says that the overlap with Small Orders is a coincidence. All three Traders say that they did not collaborate. Yet the pursuit of these strategies results in an identical pattern of behaviour; this is not a tiny sample, but it is most of their activity in placing large orders during the Relevant Period.

396.

Mr George, Mr Jaffey and Mr Bailin submitted (with different emphases based on the different positions of each of the Traders):

(1)

The Traders were each pursuing a legitimate Trading Strategy and had an intention to trade the Large Orders. The Trading Strategies were not ultimately successful, but the Traders were each willing (indeed keen) for the Large Orders to trade whilst they were on the market.

(2)

The delays by the Authority and the lack of information that would have been available to the Traders during the Relevant Period has hindered the Traders’ ability to explain their specific trading activity. They have necessarily had to try to reconstruct based on the information that is still available.

(3)

The Criteria have been selected by the Authority as a means of identifying the Instance Pool from all of the trading activity. It is therefore inevitable that the trading activity on which the Authority relies meets these Criteria and no sound inference of market abuse can be drawn from this. The question is not whether there is a pattern of activity but whether there is an intention to trade.

(4)

In any event, the Criteria are compatible with, and explained by, the operation of both the Information Discovery Strategy and the Anticipatory Hedging Strategy, such that they do not justify an inference that the trading activity was abusive.

(5)

The Authority’s approach fails to take account of the full trading activity of the Traders during the Relevant Period, and offers no explanation for, eg, the placing of Lone Large Orders or why Large Orders were amended after the Small Order had traded. This approach is unfair; Mr Bailin submitted it is an example of the “Texas sharpshooter” fallacy. The placing of the Lone Large Orders is particularly significant – they are meaningful in number and they can only be explained by the Traders pursuing their Trading Strategies, as there was no small order on the opposite side of the order book. The Authority has not put forward any explanation for these orders.

(6)

The Multi Trader Instances are not that at all; in each Instance, the Traders were not acting in concert with the others.

(7)

The Authority’s case is itself implausible. The Large Orders were not sufficiently large in size as to create an impression or signal to the market as to supply of or demand for Futures.

(8)

The SMARTS data in relation to the behaviour of other market participants shows that a high number of orders of more than 200 lots were placed on Eurex and cancelled during the Relevant Period.

(9)

The Authority has no pleaded case on motive – it has not explained why any of the Traders would risk their reputations and careers to commit market abuse, which would have been exposed by the monitoring of activity on Eurex, to achieve small price advantages on the trading of the Small Orders; the scheme to commit market abuse would not have benefitted the Traders.

(10)

There is nothing abusive about placing orders with an intent to trade, or subsequently cancelling those orders in response to a perceived lack of demand.

(11)

The Authority’s case is that the Traders conspired to commit market abuse but never committed any part of their plan to any form of electronic communication, coordinated in an open plan office where they could be overheard by others, yet the other traders nearby did not hear anything suspicious, and the Traders have put forward two different explanations for their trading activity; the Traders submit this is not credible.

397.

They referred to the differences between the Traders’ positions, submitting that these differences were supportive of the absence of a conspiracy or collaboration:

(1)

The three Traders were said to have been engaged in a single conspiracy to commit market abuse, yet had explained their placing of Large Orders by two different strategies;

(2)

Only nine of Mr Lopez’s orders were of 250 lots or more, with the majority of his Large Orders being for 200 lots. If 200 lots were sufficient to give a false impression or signal to the market, why did Mr Urra and Mr Sheth feel the need to place orders of generally higher numbers, usually 450 lots or more, and why did the Traders sometimes place Large Orders concurrently, if an order of 200 lots was thought to be sufficient to facilitate the execution of the Small Order; and

(3)

Mr Sheth had placed Multiple Large Orders in Multi Trader Instances, involving both Mr Urra and Mr Lopez. This served to draw attention to the behaviour; and in circumstances where Mr Sheth is alleged to be involved in an abusive scheme in collaboration with Mr Urra and Mr Lopez, their existence casts doubt on the Authority’s case as it would be expected that Mr Urra or Mr Lopez would have noticed Mr Sheth’s mistake and corrected him.

398.

In addition, Mr Bailin submitted that for Mr Sheth it is not simply about the plausibility of the Information Discovery Strategy; he was a junior trader, and was doing what he had been shown by his manager, and this was a strategy which Mr Heiberg had considered plausible. Mr Bailin submitted that if the Tribunal were to find as fact that Mr Urra showed Mr Sheth the Information Discovery Strategy, then Mr Sheth has not committed the deliberate and dishonest market abuse alleged.

399.

The actual trading activity within the Instances is known and agreed; we need to assess the range of inferences that may be drawn from that activity. The Tribunal takes the approach of assessing the various themes which arose from the parties’ submissions and the evidence, and then taking into account all of our findings of fact and this analysis and reaching conclusions in relation to the conduct and intentions of each Trader.