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

Mr Urra described his trading style as being multi-dimensional, being informed by a range of information and strategies. Mr Urra frequently used relative value trading strategies, seeking to exploit pricing discrepancies or misalignments between related financial instruments. His perspective was that a key advantage of relative value trading was that such trades could be structured to offset directional market risk. Instead of speculating on the overall direction of the market, the primary risk exposure associated with relative value trading is the relative price change between instruments.

This Information Discovery Strategy was devised by Mr Urra and was based on his belief that the Desk was vulnerable to an information disadvantage and that clients may be splitting orders with MHI and other market makers. Mr Urra’s hypothesis was that another market maker, referred to by Mr George as a “Posited Trader”, who might be dealing with a possibly much larger part of the same client order, might now be exposed to significant risk and be looking to hedge their position swiftly and might be prepared to pay a premium to do so. A large order, away from the touch, might be attractive to such a Posited Trader and be profitable for the Desk.

Mr Urra’s evidence was that this strategy was consistent with the objectives of the Desk, low risk and in line with the Mandate – the Desk was allowed and encouraged to take positions as long as the overall activity was within the Desk limits.

The benefits for the Desk were:

The Large Orders were not large for the market, they were fully transparent and available for a sufficient period of time to enable market participants to decide whether or not to transact. If the orders had been filled, they would have been fully honoured and the transactions settled.

A consequence of the Information Discovery Strategy was that large orders would be likely to frequently (but not always) overlap with small orders trading in the opposite direction; both orders could have been triggered by the same client activity or market event, despite serving entirely different purposes. A cash enquiry from a client that traded away (ie MHI was asked for a price but the client traded elsewhere) may still have prompted him to use this strategy and place a large order, but in that situation the Desk would not be hedging a client trade (ie it would not be placing a small order on the opposite side).

Mr Urra’s evidence was that he had had some successful fills in the past which made him think the strategy was worth implementing. He did recall that in late May or early June he had been filled all at once in what he described as a medium-sized order behind the touch “which, in addition to representing a good deal with a potential for profit, had allowed [him] to understand better market positioning or some client activity at the time”. (The more specific evidence in relation to past success was put forward by Mr Sheth - Mr Sheth had a specific recollection that Mr Urra had a successful trade in May 2016 and had told him about this. Mr Sheth was subsequently able to identify (from the records of trading activity) that this had been on 12 May 2016 and involved an order of 450 lots.) Mr Urra explained that he became less enthusiastic about this strategy, and decreased the number of times he used it as the Relevant Period progressed.

Mr Urra could no longer recall the specific trigger for placing the Large Orders which are in the Instance Pool, and referred to the information that was no longer available, including Voice RFQs, Bloomberg/Chat RFQs and market information, which would have informed his trading decisions at the time. Mr Urra had not, in his witness statement or giving evidence, attempted to reconstruct the rationale for his trading (although he had given some explanation in relation to F47 and F150).