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

The Large Orders were often live for just a few seconds, and then cancelled shortly after the Small Order filled.

Mr Urra’s Large Orders in the ten Specified Instances that were Single Trader Instances were live for 1.899 seconds (in F7) to 46.3 seconds (in F47). The order that was live for 46.3 seconds in F47 is an outlier; it is the first of two Large Orders placed in F47, and when it was cancelled the Small Order had not traded; the second Large Order in that Instance was live for 2.13 seconds. The range without that first Large Order in F47 is from 1.899 seconds (in F7) to 4.815 seconds (in F12).

Most of the Specified Instances that were Single Trader Instances for Mr Sheth include Multiple Large Orders, and he would cancel the one closest to the touch first, and that is the one that had been placed most recently. In F55, F67 and F125 (each of which involved just one Large Order), the Large Orders were live for 1.646, 2.66 and 1.433 seconds respectively. There were three Large Orders in F103, live for 9.331, 6.679 and 1.478 seconds respectively. Illustrating this another way, F104 and F153 both involved Mr Sheth placing two Large Orders – the time from placing the first, to cancelling the second was 4.581 and 4.02 seconds (ie at that point the first Large Order was still live, and cancelled shortly afterwards, but this is the period of time for which Mr Sheth says he was testing the theory that a client was splitting its order).

We are not persuaded that these short periods of time were sufficient to test a theory that a Posited Trader might be looking or willing to trade in volume at that time, and reach a conclusion that there was no such Posited Trader. This is particularly apparent where, as in F104, there had already been a gap between the RFQ which triggered the use of the strategy and the placing of the Large Order – if it was thought that it was worth placing a Large Order around 45 seconds after the RFQ was received, it is inconsistent to then conclude that the Large Order need only be on the order book for less than five seconds.

This is supported by Mr Creaturo’s evidence that the variation in the length of time the Large Orders were left on the book is not explained by a desire to test whether clients were splitting orders. Instead, his opinion was that the linking factor in what drives the cancellation of the final Large Orders in the Instances seems to be the fill of the Small Orders on the opposite side of the book.

In the Single Trader Instances which were Specified Instances, the time from the fill of the Small Order to cancellation of the Large Order for Mr Urra ranged from 1.339 seconds (in F7) to 4.646 seconds (in F12). As noted above, the first Large Order in F47 was cancelled before the Small Order filled; the second Large Order in that Instance was cancelled 1.797 seconds after the Small Order filled. Mr Urra drew attention to the slightly longer cancellation times in the Instance Pool as a whole. However, from the Tribunal’s review of further Instances, the pattern remains the same, in that the length of time for which the Large Order was live varied significantly more than the cancellation time after the Small Order filled.

For Mr Sheth, the time at which he cancelled his Large Orders (or the Large Order closest to the touch where there were Multiple Large Orders) after the Small Order filled ranged from 0.14 seconds (in F175) to 2.529 seconds (in F176).

In his witness statement Mr Sheth referred to his activity in F52 (a Multi Trader Instance involving Mr Lopez and Mr Sheth, which was not a Specified Instance). Mr Sheth had placed a Large Order to sell 500 lots whilst Mr Lopez had a Small Order to buy seven lots, had reduced the price and then cancelled the Large Order, at a point at which Mr Lopez’s Small Order had not started to fill. Mr Sheth said his Large Order was placed for his strategy, and that if the Authority’s theory was correct he would not have cancelled the Large Order at that time.

We are not persuaded that the activity in this Instance supports this submission. Mr Sheth’s Large Order had been live at its amended price of 140.74 for 13.392 seconds. Mr Lopez also had a Large Order to sell 200 lots for 140.73. The Spread graph shows a spike in traded volumes and the market moved towards the Large Orders. Mr Sheth’s Large Order was at the touch, and he immediately cancelled the order, as did Mr Lopez. They cancelled their Large Orders within 0.2 seconds of each other. Whilst we recognise that Mr Lopez’s most recent Small Order had not traded, Mr Sheth cancelled his Large Order just at the moment when a sharp price movement meant he could have traded. Instead, he decided to cancel.

Giving evidence, Mr Sheth referred to F94 (a Multi Trader Instance involving Mr Lopez and Mr Sheth) as an Instance where he cancelled the Large Order he had placed before Mr Lopez’s Small Order had filled; and had also cancelled a Large Order after Mr Lopez’s Small Order had been filled. He sought to rely on this to show there was no correlation between the cancellation of the Large Order and the fill of the Small Order.

We do not find the activity in this Instance supportive of Mr Sheth’s explanation. There is various activity in this Instance:

So here, the cancellation of the first (buy) Large Order by Mr Sheth, whilst that did take place when the Small Order had not traded, was followed by the placing of a new Large Order of the same size and in the same direction. We do not place any weight on the decision to cancel that first (buy) Large Order.

Mr Urra’s and Mr Sheth’s evidence was that in any of the Instances they may have cancelled the Large Order as the market was moving away from that order; and the fill of the Small Order and the cancellation of the Large Order may have been triggered by the same market event; and Mr Sheth also gave evidence that he may have cancelled the Large Order if the cash trade he had lined up to hedge his Futures position disappeared.

This is an issue where MTS data and market information from the Relevant Period would offer the potential to assist with explaining the timing of the decision to cancel the Large Orders (according to the evidence of Mr Urra and Mr Sheth).

However, even allowing for the possibility that some market information would support their explanations, the Tribunal considers there are difficulties: