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

The Traders drew attention to the length of time since the Relevant Period and submitted that the delays by the Authority in its investigation and in particularising its case have resulted in unfairness and prejudice.

On 26 July 2016, the Exchange sent a letter to Mizuho Securities USA Inc (“MSUSA”) (which was the member firm on the Exchange) querying the trading rationale for two identified episodes of trading which had taken place on 29 June 2016 (the “Eurex Letter”). MSUSA forwarded this letter to MHI on 28 July 2016. MHI then interviewed Mr Urra (on 29 July and 5 August 2016) and Mr Sheth (on 3 and 9 August 2016) before responding to Eurex on 22 August 2016.

MHI’s Compliance team continued its own review of the trading activity (as part of which it interviewed Mr Lopez on 29 September 2016) and produced a report on “A Review of European Government Bond Desk Dealing Practice on the EUREX Exchange” in October 2016 (the “MHI Compliance Report”). That report was sent to the Traders on 13 October 2016 and they were informed by MHI that they would be the subject of a disciplinary investigation in relation to orders for Futures placed on Eurex. MHI sent this report to the Authority (which had already been informed of the Eurex Letter).

The matter was referred to MHI’s Head of Human Resources (“HR”) for a disciplinary investigation. MHI held further meetings with each Trader - Mr Urra and Mr Lopez were each interviewed on 18 October 2016, Mr Sheth was interviewed on 14 October 2016, and there were disciplinary meetings with each Trader on 2 November 2016.

On 10 November 2016, MHI’s CFO wrote to each of the Traders to inform them of the outcome of the disciplinary process. MHI took no disciplinary action against Mr Lopez. MHI issued a first warning to Mr Sheth in respect of his “poor practice” in placing multiple orders instead of amending existing orders and a final warning to Mr Urra in respect of his management of Mr Sheth. There were no findings of market abuse against any of the Traders.

Mr George submitted that the Authority’s investigation then progressed at an exceptionally slow pace:

The Traders referred these matters to the Tribunal on 28 November 2022, and the references were heard from 27 January to 14 February 2025. Mr George referred to the decision of the Tribunal in Seiler, Whitestone and Raitzin v Financial Conduct Authority [2023] UKUT 133 (TCC) (“Seiler UT”) where the Tribunal had (at [59]) described the delays as unsatisfactory and recorded that in that case the lapse of time between the events in question and the hearing of the references was longer than any other comparable proceedings in the experience of that Tribunal, noting that such record has now been surpassed in these proceedings.

Alongside their submissions in relation to what they described as the slow progress of the Authority towards the issue of Decision Notices, the Traders drew the Tribunal’s attention to how the Authority’s case has been particularised and submitted that the Authority’s failure to particularise the Instance Pool at an early stage has also hindered the Traders’ ability to recollect the specific trading activity on which the Authority now relies:

Mr Shivji submitted that this is a particularly technical and complex matter and the Authority had sought to conduct a thorough and fair investigation. It was inevitable that it was always going to take some time for the Authority to analyse the data - the Authority received approximately 16.5m lines of data from Eurex alone. The Authority submitted that the relevance of the delay must be set in its proper context, saying the Traders’ central complaint was understood to be that the passage of time meant that they have difficulty recalling what happened and why; this was described as “uncontroversial” by the Authority. On the facts, Mr Shivji submitted that even if the Authority had been able to move much more quickly – which was not accepted – this would not have improved the evidence before the Tribunal. The Traders acknowledged that their recollection of the specific trades was poor even in September and October 2016; and on any view the hearing before the Tribunal would be taking place years after the end of the Relevant Period.

The hearing took place over a period of three weeks. Having heard the submissions of the parties, the evidence of the Traders and the two experts, during the course of which the Tribunal was taken to a large amount of data in relation to the trading activity, the Electronic RFQs received by the desk and the cash bond transactions which were executed - which was itself only a small portion of that which was in the hearing bundle - the Tribunal accepts that a thorough investigation would take time. However, whilst we have not heard from any witnesses from the Authority who could have explained the progress of the various steps in the investigation (an approach which was itself criticised by the Traders in their opening submissions), the Tribunal considers that there were some delays that are unexplained and are not a consequence of the complexity of the underlying activity. Those which potentially had the most significance are those which occurred in the early stages, in particular:

Progress thereafter was not swift. But it is these delays which meant that it was more than four years after the Relevant Period that the Authority served the Annotated Warning Notices on the Traders, and whilst the Authority has subsequently amended the number of Instances on which it relies against each Trader, it was not until this time that the Traders would have understood the breadth of the case being made against them and, importantly, that the Authority was not only challenging whether the Traders were pursuing a legitimate trading strategy but also alleging that they had each (individually and together) engaged in market abuse on a large number of occasions throughout a period of two months.