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

It did not assist with the pursuit of the Desk’s aims, which were to routinely stand ready to purchase and sell BTPs and be willing and available to quote or transact in these instruments for its own account, in commercially reasonable amounts and throughout market cycles. This is the essence of market making. If the Large Order had traded, then the Desk would, until it closed out its position, have a directional position which meant that it would not be able to quote competitively in both directions. This would have meant that if the client whose RFQ had prompted the use of the strategy came back to MHI for more, the Desk would be wrongly positioned against this client flow, which is contrary to the usual practice of market making (which is to trade in the same direction as client flow as opposed to against it).

The Mandate does not authorise market making in Futures. It does allow hedging in Futures. Transactions in hedging instruments must not be conducted where such transactions increase the Desk’s market risk exposures, other than “in anticipation of a highly likely near term exposure to risk, where there is a sound risk management rationale for such anticipatory hedging”. If the Large Order had traded, this would have increased the Desk’s exposure to market risk, and this was not in anticipation of a highly likely near term exposure to risk. The Information Discovery Strategy was not directed at an expected near term exposure to risk from its cash trades, let alone one that was “highly likely”.