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

The Tribunal accepts that a client sending an RFQ to MHI may have been splitting its order with other market makers, and thus transacting at a larger size than was shown to MHI.

Addressing the likelihood of this happening, we consider that this was not routine, it was simply a possibility. In particular, based on the evidence of Mr Creaturo, we find that a client looking to do a large transaction would be very unlikely to split that order. They would be best served by using a trusted counterparty, who would be able to transact at the desired size, to avoid leaving a footprint and running the risk that the market would start to move against it.

Where a client did decide to split their order amongst market makers (rather than just seeking prices for a specified amount from multiple market makers), we find that they would typically divide their order between no more than three market makers, and would be likely to split in broadly even amounts. Giving a simple example, a client showing €10m to MHI may be doing €10m or €20m with, respectively, one or two other market makers. In reaching this conclusion we have preferred Mr Creaturo’s evidence based on his own experience; whilst Mr Kasapis was able to hypothesise as to the theory of how a client might approach multiple market makers, splitting €100m between, say, ten counterparties, he had no relevant experience of market making and we were not satisfied that his speculation as to this possibility would in fact ever be likely to happen in practice.

The Large Orders placed by Mr Urra and Mr Sheth were mainly of 400 to 500 lots, which is approximately equivalent to €40m-50m of ten-year cash bonds. The RFQs in respect of which they tested their strategy are much smaller than this. The three trades identified by Mr Kasapis in respect of Mr Urra’s Specified Instances that Mr Urra agreed were plausible were each for cash bond trades of €10m. Mr Sheth had identified cash bond trades of €0.5-10m in respect of his Specified Instances.

Based on the size of the RFQs identified as having been sent to MHI in each of these Instances, reinforced in some cases by the identity of the client, the Tribunal considers that Mr Urra and Mr Sheth would have had no realistic basis on which to suppose that the client would, for these cash bonds, have done an additional €40-50m with another market maker. We identify in this regard that their strategy was said to be seeking a single Posited Trader who had done a trade of that amount with the client, and not the position where a client had split a €40m trade across eight market makers, giving them €5m each.