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

Mr Lopez’s explanation was that he placed large orders as anticipatory hedges pursuant to his Anticipatory Hedging Strategy.

It was not clear to the Tribunal how this had been explained by Mr Lopez to Compliance in September 2016. We found that the notes of Mr Lopez’s interview with Compliance do not present a clear picture of the explanations that were being given to Compliance by the relevant Trader. The notes of Mr Lopez’s interview do refer to his experience at his previous employer, but they do not include any indication that Compliance had identified that Mr Lopez was providing a different explanation for his trading than that which had been given by Mr Urra and Mr Sheth. The differences did, however, emerge from the notes of Mr Lopez’s disciplinary interview with HR in October 2016, and this was then consistent with his interview with the Authority in 2018.

We have accepted that Mr Lopez was seeking to win more €20-30m RFQs, and that to do this he would need to offer competitive pricing. A strategy of anticipatory hedging would in principle make sense, on the assumption that there is a predictable pattern of RFQs (with a predictable size, direction and time) and this would not hinder the Desk’s other activities.

However, we have expressed doubts about the Anticipatory Hedging Strategy as it was pursued by Mr Lopez. In particular:

The above reservations means that we have significant doubts about Mr Lopez’s evidence as to the rationale for the placing of his Large Orders and his intention to trade those Large Orders.

We are also concerned by Mr Lopez’s failure to comply with the requirements of the Mandate. Mr Lopez said he did not have a specific recollection of being shown the Mandate but accepted that he would have known about, and would have been familiar with, the limits and concepts referenced therein. We find his apparent approach surprising – Mr Lopez’s evidence throughout the hearing showed his level of attention to detail, and he would have known (from his previous experience at Credit Suisse and from his training at MHI) that the Desk’s activities were constrained by the terms of the Mandate such that he needed to know those constraints. Yet whilst he repeatedly referred to the Mandate permitting anticipatory hedging, he had not sought the approval of Mr Urra or Mr Heiberg for the Anticipatory Hedging Strategy. We do not consider that it is an answer to this to say that anticipatory hedging is entirely normal practice, as he was not pre-positioning for specific imminent client activity or by reference to the average size of the RFQs received by the Desk; or that Mr Heiberg had recruited him to focus on medium-sized RFQs and the orders he placed were sized by reference to such RFQs, as that addresses the outcome rather than the means by which it was to be achieved.

Nevertheless, we do recognise the potential underlying merits of Mr Lopez’s explanations for the Large Orders, including not only the basic premise of anticipatory hedging but the link between the size of his Large Orders and the size of the cash trades he was trying to win, and that he placed fewer large orders than Mr Urra and Mr Sheth. In addition, Mr Jaffey drew attention to the small number of lots in some of the Small Orders which had been placed by Mr Lopez, and where he crossed the spread to trade.

In assessing whether the Authority has met its burden of proof, the Tribunal has also considered whether Mr Lopez’s trading activity has been (unfairly) caught up in the pattern of trading activity which results from the abusive scheme which was devised by Mr Urra and pursued by Mr Sheth. We look in particular at the Small Orders placed by Mr Lopez, his Lone Large Orders and his activity in the Multi Trader Instances.

We have considered the Small Orders in the Specified Instances when assessing the plausibility of the Authority’s case. It is notable that, of the ten Specified Instances (which were selected by the Authority) for Mr Lopez, the size of the Small Order in each of F56 and F63 was just five lots, and in F132 it was one lot. Separately, in F190, the Small Order filled when Mr Lopez amended the price and crossed the spread. We agree with Mr Jaffey that, in circumstances where the Authority’s position is that the Traders were pursuing an abusive strategy to facilitate the execution of their Small Orders, it might have been expected that a Trader would deploy this strategy on occasions where the small orders were for a greater number of lots (and certainly not in single figures).

For each Trader, we have recorded that the Lone Large Orders are unexplained on the Authority’s case. For Mr Lopez, we consider this has less weight. He placed 88 large orders in the Relevant Period, only five of which were Lone Large Orders, and two of those were placed very close to a small order in the opposite direction (the one to which we were taken filled in the same second as Mr Lopez placed his order). This leaves three Lone Large Orders which are, on the Authority’s case, unexplained.

We have considered Mr Lopez’s involvement in the Multi Trader Instances. We consider that some of these Instances cast significant doubt on Mr Lopez’s explanations and his denial of collaboration with Mr Urra and Mr Sheth:

The Multi Trader Instances show repeated coincidences of timing between the activity of Mr Lopez and the other two Traders but also, as illustrated by F31 and F174, show that notwithstanding that Mr Lopez was, on his evidence, pursuing a different Trading Strategy to Mr Urra and Mr Sheth, and one which was in the direction of MHI’s predicted client flow, whereas Mr Urra and Mr Sheth were trading against client flow (or, at least, against the current flow of clients who had sent RFQs to the Desk), the end result was that Mr Lopez placed Large Orders at the same time and in the same direction as both Mr Urra and Mr Sheth. This is remarkable and potentially incredible.

Mr Bailin and Mr Jaffey relied on Mr Sheth’s Multiple Large Orders in F174 as illustrative of their submission that the Traders were not collaborating as Mr Lopez would have seen these three concurrent Large Orders and would have corrected Mr Sheth’s error as Mr Sheth’s activity risked (and indeed did) drawing attention to their trading. In F174 Mr Sheth had placed two Large Orders, each to buy 500 lots, before Mr Lopez placed his Large Order to buy 200 lots. Mr Sheth’s two Large Orders were four and five ticks from the touch by the time Mr Lopez placed his Large Order (three ticks from the touch) and created a significant volume skew. After Mr Lopez had placed his Large Order, Mr Sheth then placed a further Large Order, this time at the same price as Mr Lopez’s Large Order. We agree that, if the Traders were collaborating to facilitate the execution of Mr Lopez’s Small Order in F174, we would have expected Mr Lopez to see this activity and challenge Mr Sheth if it had not been intended that Mr Sheth would place total orders of this volume on the order book. We do note that it is an extreme example of a Multi Trader Instance where Mr Sheth had placed Multiple Large Orders.

We have referred throughout to the absence of any direct evidence of collaboration between the Traders to commit market abuse. It is striking that, in circumstances where Mr Urra, Mr Lopez and Mr Sheth are alleged to have collaborated in an abusive strategy, they have provided two different explanations for their trading activity.

Having assessed all of the evidence, and having considered Mr Jaffey’s detailed submissions in relation to the plausibility of the Authority’s case, the Tribunal is satisfied that the Authority has established that:

The Tribunal concludes that this conduct amounted to market abuse within s118(1) FSMA 2000 and market manipulation within Article 15 of the Market Abuse Regulation.

On the basis of our conclusions as to Mr Lopez’s actual knowledge and intentions, the Tribunal finds that his conduct was dishonest by ordinary standards.