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

On 31 October 2022 the Financial Conduct Authority (the “Authority”) through its Regulatory Decisions Committee (“RDC”) issued Decision Notices to each of Diego Urra (“Mr Urra”), Jorge Lopez Gonzalez (“Mr Lopez”) and Poojan Sheth (“Mr Sheth”) (together, the “Traders”). In those Decision Notices 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 pursuant to s56 Financial Services and Markets Act 2000 (“FSMA 2000”), and imposed penalties on each of them pursuant to s123(1) FSMA 2000.

Each of the Traders referred their respective Decision Notices to the Tribunal. This decision concerns the subject matter of those references, which were heard together.

The Traders were traders at Mizuho International Plc (“MHI”). The Authority’s case is that the Traders pursued an abusive trading strategy in relation to Long-Term Italian Government Bond Futures (“Futures” or “BTP Futures”) on 233 occasions (between the three of them) between 1 June 2016 and 29 July 2016 (the “Relevant Period”). This abusive strategy is alleged to have involved placing orders of at least 200 lots (the “Large Orders”) which gave the false or misleading impression and/or signal that the Traders wanted to buy or sell a specified number of Futures, when in fact their objective was to facilitate the execution of other (genuine) smaller orders (generally of fewer than 200 lots) on the opposite side of the order book (the “Small Orders”). The Authority’s case is that this constituted market abuse within s118 FSMA 2000 and market manipulation within Article 12 of Regulation (EU) No 596/2014 (the “Market Abuse Regulation”). The Tribunal uses “market abuse” to refer to both market abuse and market manipulation within these regimes.

Each of the 233 occasions is referred to as an “Instance”, ie that is the term used to capture the trading activity on which the Authority relies. The 233 Instances are together the “Instance Pool”, those Instances involving orders placed by one Trader are “Single Trader Instances”, and those where orders (whether Small Orders or Large Orders) are placed by more than one of the Traders are “Multi Trader Instances”. There are a total of 341 Large Orders in the Instance Pool.

The Traders do not dispute the details of the activity within the Instances. They deny they committed deliberate market abuse, and submit they did not act dishonestly or lack integrity, as alleged by the Authority. The Traders each say that they placed each large order (ie the Large Orders and other large orders outside the Instance Pool) in pursuit of a legitimate trading strategy, they intended to trade their Large Orders and there was no collaboration (such that the Authority’s approach of identifying and relying on Multi Trader Instances is misguided). They have put forward their explanations for their trading strategy (for Mr Urra and Mr Sheth, the Information Discovery Strategy, and for Mr Lopez, the Anticipatory Hedging Strategy) and sought to explain their trading by reference to available evidence (and drawing attention to information that is no longer available).

The parties have produced a Statement of Agreed Background Facts (“SOABF”) which is set out at Appendix 1 and forms part of this decision. We use the terms as defined in the SOABF in this decision. The SOABF covers the cash BTP market, client RFQs, hedging and trading in Futures on the Eurex Exchange (“Eurex” or “the Exchange”), MHI and the EGB Desk, and includes a glossary.

On terminology in relation to the orders placed by the Traders, the parties have at various times used different defined terms for what we have referred to above as the Small Orders and Large Orders (which was adopted by the Authority and Mr Bailin by the time of the hearing, with Mr George and Mr Jaffey referring to the Large Orders as “Larger Orders” and “Relevant Orders” respectively). The Authority had previously defined these as the “Genuine Orders” and the “Misleading Orders”, and that is the language used in their statements of case (and subsequent amendments thereto). The Tribunal recognises that the terms Small Orders and Large Orders are not neutral – the Traders’ position is that the orders which are relied upon by the Authority as having given a false impression and/or signal, whether of 200, 450 lots or 500 lots, are not “large” but medium-sized.

The Tribunal has recognised throughout that whilst the Authority’s case is that the Traders individually and acting together committed market abuse by placing orders they did not wish to trade but whose purpose was to facilitate the execution of the Small Orders, we need to reach a conclusion in relation to each of the Traders. We have taken account of and assessed the activity of each trader individually as well as alongside that of the other Traders in the Instances when assessing their explanations for their trading.

For the reasons set out below, the Tribunal has concluded that the Traders each deliberately engaged in market abuse, and that this conduct was dishonest and lacked integrity. The Traders’ references against the prohibition orders are dismissed. The Tribunal determines that the appropriate action for the Authority to take is to impose a financial penalty of the following amount on each of the Traders and the references are remitted to the Authority with the direction that effect be given to our determinations:

The Tribunal is grateful to the parties for their written and oral submissions. We have not found it necessary to refer expressly in this decision to all of the evidence and submissions but we have taken them all into account.

There was, as is to be expected, some overlap between the submissions made on behalf of each of the Traders, albeit that some submissions were distinct (eg the difference in the trading strategies between Mr Urra and Mr Sheth on the one hand and Mr Lopez on the other, the size and number of Large Orders placed by Mr Lopez, the issue of Mr Sheth’s level of experience and the submissions in relation to Mr Sheth’s placing of multiple overlapping Large Orders). We do specifically refer to some of the submissions as having been made by counsel for one of the Traders; we do not lose sight of the fact that the same or a similar submission was also made on behalf of another Trader.