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

The Traders referred the Tribunal to various parts of the transcripts of the interviews conducted by the Authority to support their submissions that Mr Heiberg, Mr Joshi and Mr Hill had relevant evidence to give, including in relation to:

The Traders made submissions as to the adverse inferences that should be drawn, including that the Tribunal should infer that these individuals were not called as their evidence would not support the Authority’s case.

The Authority accepted that the 15% hit ratio was an informal target which had been introduced by Mr Heiberg, and that Mr Heiberg was satisfied with Mr Urra’s personal performance. The Tribunal finds as facts accordingly (which is consistent with the other evidence before the Tribunal, including the records of Mr Urra’s appraisals).

The Authority’s position was that the remaining matters were largely matters of opinion. The Tribunal has the Eurex Letter, the Mandate and the MHI Compliance Report and can reach its own conclusions as to the enquiry raised by Eurex, the Traders’ understanding of that letter (on which they were cross-examined), the requirements of the Mandate and the conclusions reached by Compliance. The Authority submitted that opinions as to the plausibility of the Trading Strategies can best be addressed by the evidence of the independent experts.

The Tribunal acknowledges that it has the Eurex Letter, the Mandate and the MHI Compliance Report (with no further review having been undertaken by Compliance since the date of that report) and agrees that it can reach its own conclusions on each.

With one exception, the Tribunal agrees with the Authority that Mr Heiberg, Mr Joshi and Mr Hill do not have material evidence to give in relation to facts (rather than matters of opinion) which are in dispute – they were not trading in Peripheral EGBs in the Relevant Period, or otherwise involved in the trading within the Instance Pool, Mr Heiberg and Mr Joshi did not sit with the Traders, and the Traders had not discussed their Trading Strategies with them with a view to obtaining approval in accordance with the terms of the Mandate. The exception is that Mr Heiberg did in his interview with the Authority provide further background to the recruitment of Mr Lopez and said that his intention was that Mr Lopez would focus on medium-sized RFQs. It became clear during Mr Shivji’s cross-examination of Mr Lopez that the Authority did not accept Mr Lopez’s evidence that he had been recruited to focus on medium-sized RFQs. The Tribunal has taken account of Mr Heiberg’s explanations given to the Authority during this interview when making its findings of fact.

The Tribunal agrees with the Authority that the further matters identified by the Traders are primarily matters of opinion on which the Tribunal has the benefit of expert evidence. Furthermore, the Tribunal rejects the Traders’ submissions that these persons were not called as they would not have been supportive of the Authority’s case. That submission is contradicted by the evidence including the totality of those interviews.

At an early stage Mr Heiberg had expressed concerns about the explanations being given by the Traders for their trading, telling Compliance on 6 October 2016 that it was “not fully convincing”. The Tribunal takes this to refer to the Information Discovery Strategy, as Mr Heiberg had been speaking primarily to Mr Urra and this was his explanation. Mr Heiberg was then interviewed by the Authority on 17 July 2017.

During the course of his interview Mr Heiberg said:

Viewed as a whole, we do not accept the Traders’ submissions that Mr Heiberg’s evidence would not have been supportive of the Authority’s case. The Tribunal considers that Mr Heiberg had expressed concerns about Mr Urra’s description of the Eurex Letter and the explanations Mr Urra provided in response. He had described his relationship and interactions with Mr Urra and how Mr Urra was very communicative, and then said it was striking that Mr Urra had not discussed his new strategy with him. Given the timing of this interview, which was before the Authority had interviewed Mr Lopez (although we infer that the Authority would have had copies of the notes of Mr Lopez’s interviews with MHI), and the way in which the strategy is described, we infer that Mr Heiberg’s comments on understanding the approach and the concerns he expressed are about the Information Discovery Strategy. Mr Jaffey submitted that Mr Heiberg had endorsed the Trading Strategy used by Mr Lopez, ie the Anticipatory Hedging Strategy, submitting that he made significant points about the legitimacy of this as a market making strategy and the sizing of the orders. Whilst we agree that Mr Heiberg made significant points about Mr Lopez’s intended role at MHI, we are not persuaded that Mr Heiberg’s observations on anticipatory trading were an endorsement of Mr Lopez’s strategy – our reading of Mr Heiberg’s explanation is that he had not identified at that time that Mr Lopez was giving a different explanation to that of Mr Urra, and his references to anticipatory trading were in the context of anticipating the cash bonds that clients may seek to buy and building an inventory of such bonds.

The Compliance department’s conclusions on the activity were set out in the MHI Compliance Report, based on the review which it had conducted at that time. That report refers to “sufficient doubt” as to the credibility of the explanations and expressed its conclusion as “indeterminate”. The note of the Authority’s subsequent meeting with Mr Joshi (and the CEO of MHI) on 2 November 2016 included in the summary that MHI found the traders’ activity unacceptable but could not find unequivocal evidence that the Traders’ intention was to manipulate the market.

In his interview with the Authority on 3 October 2017, Mr Joshi explained how MHI monitored traders, the various levels of surveillance and alerts which were in place, and the steps they took following receipt of the Eurex Letter. The transcript of the interview records Mr Joshi as having said “we weren’t completely sure as to why these orders had been placed”; and price discovery is a good explanation (which was “logical, makes sense”) but they weren’t sure whether that was the “real reason”. Mr Joshi explained that Compliance had received the data for the sampling exercise before MHI responded to MSUSA and the Exchange and had identified other examples of large orders on the other side of small orders and they thought this was “a little bit unusual”. Mr Joshi said that MHI gave the Exchange a factual response based on their investigation and what MHI had found out about the trading from the Traders. Mr Joshi emphasised that the Exchange was not asking MHI to do an investigation, or whether this had occurred on other days, or whether MHI considered this could be market abuse – he made the point that the Exchange had their own surveillance department.

The Tribunal considers that Mr Joshi was distancing Compliance from the explanations given by the Traders (which would have been just Mr Urra and Mr Sheth at that time, as Mr Lopez had not been interviewed before MHI responded to Eurex) and was very careful not to say that he had accepted their explanations. He referred to Mr Urra and Mr Sheth as having given the “primary, clear explanation” that this was for price discovery purposes. It was also not apparent that Mr Joshi had identified at any time that Mr Lopez’s explanation for his trading (which was given after MHI replied to the Exchange but before Compliance finalised the MHI Compliance Report) was different to that of Mr Urra and Mr Sheth. In any event, the Tribunal does not consider that the evidence supports the Traders’ submission that Mr Joshi was not called as he would not have been supportive of the Authority’s case.

Mr Hill had been interviewed on 8 June 2018 (ie after the Authority had interviewed the Traders, albeit only Mr Lopez had provided substantive answers to the Authority’s questions) and was asked about the Information Discovery Strategy, and did refer to somebody else being “desperate to trade” and taking the opportunity to access the liquidity. However, Mr Hill seems to be talking about price discovery, ahead of a client trade, referring to being able to show a client a better price where there is liquidity at that price point, and emphasised that the question of how many lots to offer is very subjective and will depend on the market at the time (volatility, width of spread, time of day) and what you are trying to achieve. His opinion on plausibility is significantly constrained by these differences, and the Tribunal, on reading the whole of the transcript of this interview, is not persuaded that the Authority would have concluded that his evidence would be unhelpful to them.

Whilst we do not draw adverse inferences from the Authority’s decision no to call these persons as witnesses, the transcripts of the interviews are nevertheless hearsay evidence before the Tribunal and we have taken them into account alongside all of the evidence before us, in particular in relation to Mr Sheth’s status on the Desk, the recruitment of Mr Lopez, Mr Heiberg’s view of the hit ratio and the way in which MHI conducted monitoring of the activities of the trading floor.