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

The Traders have each emphasised in their witness statements and during cross-examination that they no longer have access to the full range of information that would have been available to them during the Relevant Period and which would have formed part of the rationale for their trading activity and that this, as well as the delays by the Authority in disclosing the information which is now available, has hindered their ability to recall matters.

The Traders have referred to having requested information from the Authority at various times during the Authority’s investigation, eg Mr Urra asked for specified categories of information on 4 April 2018. Similar requests have been made by Mr Lopez and Mr Sheth. Some, but not all, information that has been requested has been provided by the Authority. The Traders have not made an application to the Tribunal for disclosure by the Authority.

The Authority’s disclosure obligations are set out in the Upper Tribunal Rules. Paragraph 4(3) of Schedule 3 requires that the Authority provide a list of any documents on which the Authority relies in support of the referred action and any further material which in the opinion of the Authority might undermine the decision to take that action; and the secondary disclosure obligation in paragraph 6(1) then requires that the Authority disclose any further material which might reasonably be expected to assist the applicant’s case as disclosed by the applicant’s reply.

In late 2020, the Authority provided to the Traders:

On 1 August 2023, the Authority provided to the Traders a copy of the full Eurex dataset it had received from BaFin. This dataset listed all orders, including enters, fills, partial fills, amendments and cancellations, in Futures by all market participants during the Relevant Period.

In their written skeleton arguments and in their opening submissions the Traders referred to information that is not available. This includes the following categories:

In their written closing submissions the Traders adopted different positions from each other in relation to the disclosure which had been made by the Authority:

In his oral closing submissions (which were delivered the afternoon after the exchange of lengthy written closing submissions), Mr Shivji submitted it had not been said by the Traders that the Authority has material and has failed to comply with its disclosure obligations. Mr Shivji acknowledged that it was not possible to recreate the exact trading environment, referring to the difficulties experienced by MHI in seeking to retrieve information.

The Tribunal considers that these differences between the Traders, and Mr Shivji’s submission at the hearing that it was not said by the Traders that the Authority has failed to comply with its disclosure obligations, whereas both Mr Bailin and Mr Jaffey did in fact come close (at the very least) to taking such a position in their written closing submissions, illustrate the difficulty which is faced by this Tribunal where an applicant has not made an application for disclosure before the start of the hearing. Such an application would require the applicant to set out the basis on which it considers that the Authority had material which was required to be disclosed pursuant to the Upper Tribunal Rules, and the Authority would then be expected to make representations and potentially adduce witness evidence from those who had conducted the investigation and could speak to the disclosure exercise which had been undertaken, which would include identifying material which has not been obtained by the Authority, and, separately, explaining why the Authority considers that it is not required to disclose material which is in its possession.

In the absence of an application for disclosure having been made which would have enabled the matters to which the Traders now refer (so far as they comprise allegations or suggestions of non-compliance rather than drawing attention to material to which none of the parties have access) being assessed with the benefit of submissions and witness evidence, the Tribunal is not persuaded that it would be procedurally fair to the Authority for the Tribunal to reach a conclusion that the Authority has failed to comply with its disclosure obligations in these proceedings.

The Tribunal does, however, address the range of information that is not in fact available to the Traders and its potential relevance.

The Tribunal finds that the categories of information at [92] above would have been available to the Traders at the time of the Instances. The Tribunal also finds that this information was potentially relevant to their trading activity and to the decisions which they made at that time. This is apparent from the evidence of the Traders, where they each made repeated references to this information and in relation to which they were cross-examined:

The Authority has produced an explanation from MHI for the absence of Voice RFQs and Bloomberg/Chat RFQs, set out in the Enforcement Submissions Document for each Trader its review of communications data (which the Tribunal infers forms the basis of the Authority’s conclusion that disclosure was not required) and, in submissions, referred to the fact that the Authority does not have the Traders’ books of inventory as they existed in real-time throughout the Relevant Period.

The Electronic RFQs from the Relevant Period had been retained in searchable form by MHI. They were provided by MHI to the Authority, have been disclosed and were in the hearing bundle. However, in response to an information request from the Authority, MHI had responded:

“Where a client submits RFQs to Sales staff by voice (on the phone) or through Bloomberg message/chat functionality, MHI responds to these RFQs by voice or Bloomberg message/ chat. Whilst these client interactions are recorded and records maintained (e.g. phone records, Bloomberg message/ chat records), they are not maintained centrally in an easily searchable format, and as such we have not included these in the attachment.

On occasion, the EGB desk may be asked to ‘work an order’ (for example, where the price quoted by MHI is rejected by the client, the client may ask the desk to trade if the price reaches a certain level). This will usually be done over the phone or through Bloomberg message/ chat. The desk has previously informed MHI Compliance Department that orders represent 1-3% of all trading activity.

In order to prepare a list of RFQs and orders received from clients by voice or through Bloomberg message/ chat during the period requested, a detailed review of electronic communications and telephone recordings between Sales staff and MHI clients would need to be undertaken.”

On the basis of this response, the Tribunal finds that MHI did not provide records of Voice RFQs or Bloomberg/Chat RFQs to the Authority. The Authority was not therefore able to review such data itself or to disclose this data to the Traders; and such records are not otherwise available to the Traders. (The communications that MHI provided to the Authority are identified at [104] below.)

It is not known how many Voice RFQs or Bloomberg/Chat RFQs may have been sent to the Desk. Mr George referred to Mr Sheth’s evidence that the records of executed trades in cash BTPs record “n/a” in the “venue” column if they were in response to a Voice RFQ or Bloomberg/Chat RFQ. There were 446 such trades in the Relevant Period, out of 1,675 recorded entries. The total number of Electronic RFQs received by the Desk in Futures during the Relevant Period was 6,972. Mr George submitted that, assuming the execution rates for Electronic, Voice and Bloomberg/Chat RFQs were broadly similar, there may have been approximately 2,500 Voice or Bloomberg/Chat RFQs during the Relevant Period. The Tribunal accepts this is a reasonable approach to estimating the number of RFQs which were sent to the Desk and in relation to which the parties (and the Tribunal) have no further information.

Save for the communications referred to at [104] below, the Authority has not provided any communications data from the Relevant Period to the Traders, whether emails, phone records, or WhatsApp/text messages. As identified by Mr Bailin, it is clear from the Enforcement Submissions Documents that the Authority did have some communications data from MHI, and MHI’s ability to capture this data is also evident from the list of material which was reviewed by Compliance in its preparation of the MHI Compliance Report.

The Enforcement Submissions Document for each Trader listed the communications provided by MHI which were reviewed by EMO as being telephone calls made on fixed office lines, audio recordings from a dealer board system, emails and Bloomberg messages. MHI had identified a technical fault with the telephone call recording system which resulted in a number of calls not being recorded, and this meant the majority of Mr Sheth’s calls were not recorded as well as calls of some members of the sales team. The review conducted by EMO was “aimed at finding any communications that explained the rationale behind the Traders’ large order placement”, and they reviewed all available communications from 30 minutes before the placement of the first Large Order in each Instance to the cancellation of the last Large Order in each Instance. This review was only conducted for some of the Instances. The EMO stated that no communications were found in which the Traders discussed their rationale for the placement of the Large Orders. They reviewed the communications for anything considered relevant to the placement of the Large Orders, as a result of which 31 communications were provided to the expert for his consideration, and he confirmed that his view of the Traders’ behaviour remained unchanged.

As regards this review by EMO, Mr Bailin drew attention to the aim being to find any communications that explained the rationale behind the placing of the Large Orders. He submitted that the Authority had not reviewed communications for any explanation of the placing of the Small Orders. This submission is relevant to the Information Discovery Strategy said to have been pursued by Mr Urra and Mr Sheth (where the Small Orders and the Large Orders were prompted by the same market activity). However, the Tribunal does not accept that the description of the scope of its review in these terms necessarily means that the EMO, in conducting the review of communications, would have rejected as irrelevant any communications in relation to the rationale for the Small Orders. Whilst Mr Urra and Mr Sheth have both provided further and more detailed explanations of the Information Discovery Strategy since they served their Replies, their explanation that there was a link between the client orders they were receiving and the placing of the Large Orders is reasonably clear from those Replies, and the Authority, we infer, concluded that there was no further material which might reasonably be expected to assist the Traders’ case as disclosed by the Replies. The Authority’s conclusion was that no secondary disclosure was required in respect of its communications review. This was not said to be incorrect by the Traders at that time.

The Authority submitted that the Traders, having seen the Eurex Letter and received the MHI Compliance Report, could have checked their own trading and secured the evidence on which they wish to rely whilst they were at MHI (seeking such assistance as they required from Compliance) - Mr Urra had continued to be employed by MHI until September 2019, Mr Lopez until February 2020 and Mr Sheth until October 2020. During cross-examination, Mr Shivji criticised the Traders for not having obtained this evidence themselves.

The Tribunal would expect Mr Lopez and Mr Sheth (whose trading activity in Futures was involved in F174 and F176) to have obtained all possible information that was potentially relevant to their trading in those Instances as soon as they became aware of the Eurex Letter. The specific activity was referenced by the Exchange, they were asked about it by Compliance, they knew they needed to provide an explanation and the events were relatively recent such that records should have been available.

However, we are not persuaded that it would have been feasible for the Traders to secure evidence in relation to all of their trading activity during the Relevant Period at that time or whilst they were at MHI, nor that they could have anticipated that this would be required:

The Tribunal has regard to what it considers to be the practical reality, namely that the Traders only have some of the information available to them to assist with explaining their trading activity and it is not possible now to recreate the trading environment within which the Traders were working during Relevant Period. Furthermore, the Tribunal is mindful throughout that the burden of proof is on the Authority.