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

The Tribunal accepts that another market maker who has traded cash is likely then to want to hedge swiftly with Futures. However, this is likely, not certain, and will depend on other factors which cannot be known to MHI, including the positioning of the other market maker’s book, its risk appetite, the cost of hedging with a cash trade and its own view of anticipated short-term client flow. In any event, such other market maker may not be prepared to pay a premium to hedge in Futures, and may not need to do so depending on the volumes available at or one tick from the touch.

Based on our conclusions about market impact, the Tribunal considers that placing a visibly large order away from the touch and expecting the market to come to that order was illogical, as the existence of that order would have a tendency to push the market the other way.

In addition, in terms of the sizing of the order, not only would the market need to move towards the Large Order, but also the orders (visible and iceberged) closer to the touch would need to trade first. Giving evidence, Mr Kasapis sought to suggest that orders at price points closer to the touch could fade, pull or cancel, so market participants don’t have to hit every single order in front of the Large Order. We accept that some of the orders ahead of the Large Orders may be cancelled, or pulled back to a more attractive price. But the point remains that another market participant seeking to trade in size would need to work through the stack to reach the Large Order, and there is invisible volume in that stack.