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

The Relevant Period straddles two legislative regimes. Prior to 3 July 2016, s118 FSMA 2000 contained the relevant statutory provisions relating to market abuse. The Market Abuse Regulation came into force with effect from 3 July 2016.

Until 2 July 2016, s118(1) FSMA 2000 provided:

“For the purposes of this Act, market abuse is behaviour (whether by one person alone or by two or more persons jointly or in concert) which -

(a)

occurs in relation to –

(i)

qualifying investments admitted to trading on a prescribed market,

(ii)

qualifying investments in respect of which a request for admission to trading on such a market has been made, or

(iii)

in the case of subsection (2) or (3) behaviour, investments which are related investments in relation to such qualifying investments, and

(b)

falls within any one or more of the types of behaviour set out in subsections

(2)

to (8). …”

“Prescribed market” and “qualifying investments” were defined by Articles 4 and 5 respectively of the Financial Services and Markets Act 2000 (Prescribed Markets and Qualifying Investments) Order 2001/996. The Eurex Exchange was a prescribed market and Futures were a qualifying investment.

Sections 118(2) to (8) of FSMA made provision as to the types of behaviour that constituted market abuse. Section 118(5) provided:

“(5)

The fourth is where the behaviour consists of effecting transactions or orders to trade (otherwise than for legitimate reasons and in conformity with accepted market practices on the relevant market) which -

(a)

give, or are likely to give, a false or misleading impression as to the supply of, or demand for, or as to the price of, one or more qualifying investments …”

The Market Abuse Regulation came into effect on 3 July 2016 and directly applied to the UK for the remainder of the Relevant Period.

Article 15 of the Market Abuse Regulation provided: “A person shall not engage in or attempt to engage in market manipulation.” Market manipulation was defined in Article 12 and Article 12(1) provided:

“For the purposes of this Regulation, market manipulation shall comprise the following activities:

(a)

Entering into a transaction, placing an order to trade or any other behaviour which:

(i)

gives, or is likely to give, false or misleading signals as to the supply of, demand for, or price of, a financial instrument …;

…

unless the person entering into a transaction, placing an order to trade or engaging in any other behaviour establishes that such transaction, order or behaviour have been carried out for legitimate reasons, and conform with an accepted market practice as established in accordance with Article 13”.

Article 12(2)(c) provided that the following behaviour shall, inter alia, be considered as market manipulation:

“the placing of orders to a trading venue, including any cancellation or modification thereof, by any available means of trading, including by electronic means, such as algorithmic and high-frequency trading strategies, and which has one of the effects referred to in paragraph 1(a) or (b), by:

…

(ii)

making it more difficult for other persons to identify genuine orders on the trading system of the trading venue or being likely to do so, including by entering orders which result in the overloading or destabilisation of the order book; …”

Futures were financial instruments and the Eurex Exchange was a regulated market for this purpose (Article 2 of the Market Abuse Regulation).

Annex I of the Market Abuse Regulation sets out, without prejudice to the forms of behaviour set out in Article 12(1), further indicators of manipulative behaviour relating to false or misleading signals and to price securing which were to be taken into account by the Authority when transactions or orders to trade are examined. These included, at A(f) of Annex I:

“the extent to which orders to trade given change the representation of the best bid or offer prices in a financial instrument…or more generally the representation of the order book available to market participants, and are removed before they are executed”

Article 4 and Section 1 of Annex II of the Commission Delegated Regulation (EU) 2016/522 set out the practices which specify indicators A(a) to A(g) of Annex I of the Market Abuse Regulation. Paragraph 6 of Section 1 of Annex II provided that such practices included:

“(a)

Entering of orders which are withdrawn before execution, thus having the effect, or which are likely to have the effect, of giving a misleading impression that there is demand for or supply of a financial instrument […] at that price - usually known as ‘placing orders with no intention of executing them’…

(g)

The practice set out in Point 5(e) of this Section, usually known as ‘layering’ and ‘spoofing’;”

Point 5(e) was set out as:

“(e)

Submitting multiple or large orders to trade often away from the touch on one side of the order book in order to execute a trade on the other side of the order book. Once the trade has taken place, the orders with no intention to be executed shall be removed - usually known as layering and spoofing…”

The Authority’s case here is that the Traders were spoofing.

The essential ingredient of market abuse under both s118 FSMA 2000 and the Market Abuse Regulation (for present purposes) is the giving of (or likelihood of giving) a false or misleading impression or signal as to supply, demand or price.

The question of what impression or signal has been given (or is likely to have been given) is an objective question. The Authority is not required to establish that a trader intended to manipulate the market, or to give any particular signal to others in the market (Financial Conduct Authority v Da Vinci Invest Ltd [2015] EWHC 2401 (Ch) (“Da Vinci”) at [107] and [156] and Winterflood Securities Ltd v Financial Services Authority [2010] EWCA Civ 423 at [17] and [25]).

The question of whether the signal that is given (or is likely to be given) is false or misleading may, however, entail a subjective analysis, as explained by Andrew Baker J in Burford Capital Ltd v London Stock Exchange Group plc [2020] EWHC 1183 (Comm) (“Burford”) in the context of the Market Abuse Regulation:

“50.

Thus, the essential ingredient is the giving of (or likelihood of giving) false or misleading signals as to supply, demand or price. Contrary to a submission by Mr Dhillon QC, that cannot always be an entirely objective enquiry, as it depends upon the signal given out (or likely to be given out) by a particular activity or behaviour. Depending on what that signal is (an objective question, to be sure), falsity might involve some subjective enquiry. The point of substance, therefore, is whether, as Mr Dhillon contended, there is no subjective element in the supply, demand or price signalling involved in this type of case (or, therefore, in considering whether there was any false or misleading signal).

51.

I do not accept that contention. A seller wishing to sell at £10 who offers to sell at £10 but, finding no takers at that price, withdraws his offer because he does not want to sell for less, and a seller who has no intention to sell at £10 but who offers to sell at £10 to initiate or exacerbate a price trend, then withdraws his offer, appear to the outside observer to have behaved identically. If their behaviour fell to be judged entirely by that appearance, they would have to be either both guilty or both innocent of a charge of market manipulation. But in reality, surely the former is innocent, the latter guilty, and that is because although the signals sent out were the same (eg their initially signalled intention to sell at £10), the truth or falsity of those signals turns on their actual intentions, which differed radically.

52.

It is no defence for the guilty seller to say that he did not appreciate he was sending out a false signal, or in some other way that he did not intend to manipulate. In that sense, the manipulation does not have to be deliberate; and that is the relevant proposition to derive from Financial Conduct Authority v Da Vinci Invest Ltd [2015] EWHC 2401 (Ch), [2016] 3 All ER 547, [2016] Bus LR 274, per Snowden J at [104]–[108], decided under s 118 of the Financial Services and Markets Act 2000 (‘FSMA 2000’) implementing the EU Market Abuse Directive (European Parliament and Council Directive 2003/6/EC), which was the EU law predecessor to MAR. That is a different point, however, and the conclusion in that case, that there had been market abuse, required (and was justified by) the finding as to the actual purpose behind the relevant order activity (ibid, at [163]): ‘The purpose of the Traders was not in truth to sell or buy as indicated by the orders they placed. Instead, the Traders intended to cause a movement in the market price of the share … and to induce other market participants to place similar larger orders, with which the Traders could then trade aggressively in the opposite direction’.

53.

Again, in my simple example, the time at which and market circumstances in which the initial offer to sell at £10 was placed might afford an argument that a seller looking to sell but unwilling to sell below £10 would have assessed that there was no sensible prospect an offer to sell at £10 might be matched and so would not have placed the offer. That might be an aspect of assessing the genuineness of the offer in fact placed, but it could not be a conclusion that foreclosed the inquiry. That MAR adopts that approach is confirmed by Pt A of Annex I, with its list of ‘non-exhaustive indicators’ to be ‘taken into account’ when examining transactions or orders to trade for the purpose of applying art 12(1)(a).”

Having considered the expert evidence, Andrew Baker J then emphasised:

“80.

Then finally, to be clear, and applying what I said in paras [50] to [51] above, it is not the case that to find a pattern of repeated placement, cancellation and replacement is to find spoofing or layering, because the question remains one of intention to trade. For example, a trader wishing to sell off or reduce a long position, in response to the Muddy Waters tweets or simply in response to the price falling, might generate such a pattern as part of a best-execution strategy that aimed to maximise his average price traded while still selling the volume he wishes to sell. That execution strategy might or might not hit both of those targets; but if that is what he is doing, though he generates one of Prof Mitts’ patterns, he never gives out a false supply or pricing signal to the market since each of his sell orders is placed intending it to trade, each cancellation is a response to the lack of matching demand, and each replacement order is again placed intending it to trade.

81.

Before getting into the detail, therefore, I am clear that Prof Mitts is wrong to opine that ‘repeatedly placing and cancelling orders in a very short time is strong evidence of manipulative intent’, or that ‘a wave of abnormal order cancellations [ie sell-side cancellations in statistically atypical volumes] at or above the best offer … indicates intentional manipulation of Burford’s share price’. Mitts 1 set out the logic for those claims, but it immediately betrays their error. The logic set out is that there is no economic justification for a short seller to place a large volume of sell orders above the best offer. The opinion that logic might justify, a more limited opinion than that expressed by Prof Mitts, is that a short seller repeatedly placing and cancelling orders in a very short time, above the best offer, is strong evidence of manipulative intent.”