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

F174 at 12.58.50.334 on 29 June 2016

F174 at 12.58.50.334 on 29 June 2016

655.

This Instance was one of the two Instances questioned in the Eurex Letter. Mr Lopez had placed a Small Order, he also placed a Large Order and Mr Sheth placed three Large Orders.

656.

Mr Lopez had bought a €5m May 2023 bond on MTS from MPS Capital Services at 12.58.10. This was on his own initiative, and not related to an RFQ. He placed the Small Order to sell 25 lots partially to hedge this bond transaction.

657.

The trading activity was as follows:

(1)

At 12.58.50.334 Mr Lopez placed a Small Order to sell 25 lots, iceberged to three, for 142.15.

(2)

At 12.58.50.686 Mr Sheth placed a Large Order to buy 500 lots for 142.09. Mr Sheth placed another Large Order to buy 500 lots for 142.10 at 12.58.52.674. (The first Large Order remained live.)

(3)

Mr Lopez’s Small Order started to trade – there was a part fill of two lots.

(4)

At 12.58.57.448 Mr Lopez placed a Large Order to buy 200 lots for 142.11.

(5)

Four more lots of the Small Order traded.

(6)

At 12.59.00.588 Mr Sheth placed a third Large Order to buy 500 lots for 142.11.

(7)

The Small Order continued to trade.

(8)

At 12.59.00.785 Mr Lopez amended the price of his Large Order, increasing it to 142.12.

(9)

The Small Order continued to trade, filling at 12.59.03.536.

(10)

All four Large Orders were cancelled. Of his three orders, Mr Sheth cancelled his order which was at the highest price first (ie the one that had been placed third, for 142.11), then those further away from the touch. The cancellations were at 12.59.04.531 to 12.59.06.704.

658.

The explanations given for the Large Orders were as follows:

(1)

In his witness statement and in cross-examination Mr Lopez explained how he may have considered that a support level could have formed at around 141.85, anticipated client buying interest based on RFQs which had been received by the Desk, and may have seen that the Bund/BTP Futures spread wanted to tighten. He therefore placed his Large Order in anticipation of client buying interest.

(2)

Mr Sheth explained that he would have seen that Mr Lopez had bought the bond from MPS Capital Services and would have deployed the Information Discovery Strategy in relation to this. In cross-examination, when presented with Mr Lopez’s explanation (ie that the cash bond was not related to an RFQ), Mr Sheth put forward an alternative possibility, namely that he had seen that MPS Capital Services, a market maker, was selling, and might have hypothesised that it might be on the back of what MPS treasury would be doing.

659.

The coincidences in this Instance are:

(1)

Mr Sheth placed his first Large Order 0.352 seconds after Mr Lopez placed the Small Order. Mr Lopez’s cash bond trade had been done 40 seconds previously, so at this point in time it is unlikely that Mr Sheth would have been responding to that information on the MTS screen.

(2)

Mr Sheth had placed Large Orders priced at 142.09 and 142.10. Mr Lopez’s Large Order was priced at 142.11. Mr Sheth placed his third Large Order at that price and 0.197 seconds later Mr Lopez increased the price of his Large Order to 142.12.

(3)

The whole Instance takes place over 56.37 seconds from placing of the Small Order to the final cancellation of the Large Orders. Yet, within this, once the Small Order is filled, all four Large Orders are cancelled within 3.168 seconds.

(4)

The strategies relied upon by Mr Lopez and Mr Sheth would suggest that they are doing different things – Mr Lopez is trying to position himself for client buying interest (ie which would involve MHI selling bonds) whereas Mr Sheth is testing whether another market maker needs to sell Futures having bought bonds from a client splitting a sell-side RFQ. Yet both have decided to place a Large Order to buy Futures within a very short period of time.

660.

Both Mr Lopez and Mr Sheth denied collaborating with each other. Mr Lopez’s evidence was that the timings were not a coincidence; the timing can be explained by the market information which would have been on the MTS screen, showing the movements in the cash bonds. They both denied knowing of the orders which had been placed by the other Trader.

661.

The Traders relied on the activity in this Instance, in particular Mr Sheth having placed Multiple Large Orders in a Multi Trader Instance, submitting that the Authority’s case relies on Mr Lopez and Mr Sheth both knowing what the other is doing, yet Mr Sheth had already placed two Large Orders, totalling 1,000 lots, at the time Mr Lopez placed a Large Order of 200 lots. If they were coordinating, Mr Lopez would have known of these Large Orders placed by Mr Sheth, would not have seen the need to place another 200 lots, and would have seen that Mr Sheth was failing to amend the price of his Large Orders but instead placing new Large Orders at a different price and failing to cancel the earlier Large Order(s). Essentially, the Traders submitted that, if the Traders were involved in an abusive scheme, Mr Lopez would have seen that Mr Sheth was deploying this poorly and risked drawing attention to their activity.