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Upper Tribunal Tax and Chancery Chamber
UT (Tax & Chancery) UT-2022-000134 UT-2022-000135 UT-2022-000137 - [2025] UKUT 00214 (TCC)
Fecha: 31-Ene-2025
RFQs and cash trades
RFQs and cash trades
Market makers provide prices to clients to buy or sell cash EGBs in response to requests for quotes. Such a request for a quote is referred to as an “RFQ”. An RFQ may be made by a client in three ways. Generally, the RFQ will come through via an electronic platform such as Bond Vision or Tradeweb or Bloomberg (an “Electronic RFQ”). However, less commonly, it may be made by telephone to the bank’s sales desk, known as a “voice” order or sent via Bloomberg messenger. The sales desk will then pass it to the market maker to provide the quote. RFQs may be placed directly by the underlying client or by a broker on their behalf. RFQs are directed by clients at specified market makers chosen by the client, not the entire market.
Electronic RFQs from the Relevant Period have been retained in searchable form by MHI and are available in the trial bundle.
RFQs must be responded to quickly given the pace at which trading takes place on the EGB market. The process of providing a quote involves the market maker considering the appropriate price for the cash bond in question, which could have a maturity date of anything from a few months up to 30 years. That will involve consideration of their book position, the cost of hedging (including via the BTP futures market), the risk of the trade and any commercial rationale for offering a competitive price to a particular client. A client may ask for quotes from several market makers and then choose the most competitive.
Once a market maker provides a quote for a client via the RFQ process, the client generally has a brief window of a few seconds to decide whether to accept the quote. If they do, the cash trade is executed and entered on the market maker’s systems. The customer may reject the quote (CustRejected), execute the transaction elsewhere (Traded Away), or fail to respond (CustomerTimeOut).
- Heading
- Introduction and summary
- Decision Notices and Authority’s amended statements of case
- Recklessness
- Traders’ Replies and outline of trading strategies relied upon
- Market Abuse
- Dishonesty
- Role of the Tribunal
- Non-disciplinary references
- Disciplinary references
- Burden and Standard of proof
- Evidence including witnesses who had not been called, information that is no longer available and relevance of delay
- Outline of evidence before the Tribunal
- Pace of Authority’s investigation and particularisation of its case
- Lack of information that would have been available to the Traders during the Relevant Period
- Passage of time, memory and witness evidence
- Potential witnesses who were not called by the Authority
- Authority’s Enforcement Division
- Other traders on the EGB Desk - James Hill and Mehdi Barouti
- Management and Compliance at MHI
- Approach of the Tribunal
- EGBs, market making, BTPs and BTP Futures
- The Traders – roles at MHI and experience
- Mr Urra
- Mr Lopez
- Mr Sheth
- MHI and the EGB Trading Desk
- Risk Management and Limits
- MHI’s EGB Business
- Financial Targets
- Remuneration
- Training
- Monitoring of activity
- Traders’ roles on the EGB Desk and interactions
- Eurex Letter
- Interviews with Compliance
- Investigation by MHI Compliance
- MHI disciplinary process
- Interviews by the Authority
- Traders’ explanations of rationale for the Large Orders
- Information Discovery Strategy – Mr Urra
- Information Discovery Strategy – Mr Sheth
- Anticipatory Hedging Strategy – Mr Lopez
- Trading Activity of the Traders in the Relevant Period
- Illustration of application of Criteria to Trading Activity in Instances
- Mr Urra - F7 at 15.31.06.983 on 7 June 2016
- Mr Lopez - F56 at 17.02.08.899 on 15 June 2016
- Mr Sheth - F55 at 16.55.33.255 on 15 June 2016
- Dates of Instances
- Number and size of Large Orders placed by the Traders in the Instance Pool
- Small Order already trading
- Amendment of price of Large Order after the Small Order filled
- Small orders which overlapped with (and on same side as) Large Orders
- Trading Activity of the Traders outside the Instance Pool
- Non-Instance large orders and Lone Large Orders
- Number of small orders placed
- Trading Activity of other participants in the market
- Market abuse
- Evaluation – Whether Large Orders are likely to impact the market
- Tribunal’s assessment of the Experts
- Mr Kasapis
- Summary of evidence of Mr Creaturo
- Market liquidity
- Liquidity of the cash market
- Comparison of traded volumes of BTP Futures in the Relevant Period with other times and markets
- Other Participant Trade Analysis
- Whether Large Orders may influence other market participants
- Market Trend Analysis
- Bid-Offer Spread Analysis
- Volume skew
- Two very large trades in 2017
- Conclusions on market impact
- Evaluation – Whether traders committed market Abuse
- Criteria used to identify the Instance Pool
- The Trading Strategies – contemporaneous explanations
- During the Relevant Period
- Reactions to the Eurex Letter
- Interviews with Compliance
- MHI Compliance Report
- Disciplinary interviews
- Conclusions
- Mandate
- Information Discovery Strategy – plausibility
- Price discovery
- Splitting of orders by clients
- Likelihood of hedging by other market makers
- Whether placing Large Orders gave information benefit to MHI
- Prospect of a profitable position and risk
- Mandate and the Desk’s aims
- Conclusions on plausibility
- Information Discovery Strategy - operation
- Clients in respect of whom the theory of splitting orders was tested
- RFQ Traded Away
- Times of day
- Lack of documentary record of operation of strategy
- Timing for which Large Orders were live and timing of cancellation
- Placing of new Large Orders shortly after cancellation and switching of sides
- Prospect of a profitable position
- Overlap between the Small Orders and the Large Orders
- Amendment of price of Large Orders
- Reduced use of strategy over the Relevant Period
- Conclusions on the Information Discovery Strategy
- Anticipatory Hedging Strategy – plausibility
- Use of terminology of pre-positioning and anticipatory hedging
- Presentation of evidence by Mr Lopez
- Responsibility for increasing success rate in medium-sized RFQs
- Placing of anticipatory hedges at a beneficial price
- Approach to increasing the hit ratio and winning these RFQs
- 93 RFQs and seeking to win this business
- Directional risk and remaining competitive
- Whether placing of large, uniceberged, orders was less likely to achieve Mr Lopez’s aims
- Anticipatory hedging under the Mandate
- Conclusions on plausibility
- Anticipatory Hedging Strategy – operation by Mr Lopez
- Speculative nature of anticipatory hedge orders
- Timing of placing the Large Orders
- None of the Large Orders traded
- Approach to determination of anticipated buying or selling interest
- Time for which Large Orders were live, amendments to price and cancellation decisions
- Overlap with Small Orders
- Size of the Large Orders
- Conclusions on the Anticipatory Hedging Strategy
- Placing of concurrent Large Orders
- Collaboration
- F30 at 17.39.34.225 and F31 at 17.45.10.137 on 10 June 2016
- F84 at 11.24.53.106 on 20 June 2016
- F174 at 12.58.50.334 on 29 June 2016
- F209 at 10.12.49.319 on 22 July 2016
- Conclusions
- Plausibility of Authority’s case that the Traders conducted an abusive scheme
- Whether the abusive scheme would have worked
- Number and Size of the Small Orders
- Market direction and Small Order already trading
- Pricing of the Small Orders
- Conclusions on facilitation of the trading of the Small Orders
- Abusive scheme would not have benefitted the Traders
- Absence of direct evidence of Traders collaborating to commit market abuse
- Risk of detection
- Authority’s alleged scheme cannot explain all trading activity
- Trading Activity of the Traders in the Relevant Period
- Amendment of price of Large Order in Instance Pool after Small Order filled
- Lone Large Orders
- Lone Large Orders placed by Mr Lopez
- Lone Large Orders placed by Mr Sheth
- Small Orders which overlapped with (and on same side as) Large Orders
- F27 at 10.15.48.236 on 10 June 2016
- F40 at 14.16.34.477 on 13 June 2016
- F48 at 11.01.18.775 on 15 June 2016
- F83 at 11.15.29.662 on 20 June 2016
- F106 at 10.03.19.849 on 22 June 2016
- F181 at 11.14.07.730 on 1 July 2016
- F203 at 12.36.16.793 on 19 July 2016
- F222 at 11.19.50.290 on 27 July 2016
- Overlapping Small Orders that did not overlap with Large Order
- Other Overlapping Small Orders
- Conclusions on the Overlapping Small Orders
- Conclusions on Market Abuse
- Mr Urra
- Mr Sheth
- Mr Lopez
- Prohibition orders
- Penalties
- Step 2: The seriousness of the breach
- Step 3: Mitigating and aggravating factors
- Step 4: Adjustment for deterrence
- Step 5: Settlement discount
- Authority’s determination of the penalties to be imposed
- Assessment of the financial penalty
- Mr Urra
- Step 2
- Step 3
- Step 5
- Mr Lopez
- Mr Sheth
- Step 2
- Step 5
- Directions
- JEANETTE ZAMAN
- The Cash BTP Market “BTP” stands for “ Buoni del Tesoro Poliennali ” (literally multi-year treasury bonds) which are long term bonds issued by the Italian Government. Alongside bonds issued by Spain, Portugal and Greece
- Market making in EGBs is very competitive US legislation known as the “ Volcker Rule ” prohibits banks from engaging in proprietary trading (ie, short-term trading for their own profit) but allows an exception for “market-making-related activ
- RFQs and cash trades
- Hedging and trading BTP futures on EUREX Changes in market interest rates typically affect the price of the bond. In essence, when the market interest rate rises, the price of a bond falls and when the market interest rate falls, the price o
- There are several types of BTP future depending on the notional maturity date of the underlying cash BTP. This case concerns a particular type of BTP future called a “Long-Term Euro-BTP Future” (“ BTP
- MHI and the EGB Desk
- GLOSSARY
- APPENDIX 2 Example data for Trading Instances
- At 15:31:07, Mr Urra placed a sell order of 40 lots as an Iceberg Order, iceberged with a maximum show of 9 lots at a time, at what was the Best Bid (crossing the spread) (the Genuine Order )
- Approximately 11 seconds later (the remaining 22 lots of the Genuine Order still not having traded, and sitting at the Best Offer), at 15:31:18, Mr Urra placed a buy order of 444 lots, 1 tick below th
- Conclusions