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

The Authority submitted that Mr Lopez placed Large Orders at illiquid or potentially volatile times of the day, when he was (i) unlikely to get any client interest, and/or (ii) liable to be stuck with a risky position overnight or come close to his limits if the Large Order filled.

We agree with the Authority that Mr Lopez cannot realistically have anticipated imminent client interest at the time he placed some of his Large Orders. Liquidity dropped dramatically towards the end of the day. Mr Creaturo explained in his evidence that very few client orders or event driven trades take place after the official closing at 17.30. Mr Kasapis also regarded this sort of time as one of the most illiquid parts of the day. This could be seen from the volumes on the stack in the Replay graphs.

Looking at all 93 RFQs, only three of them arrived after 14.00, and only 14 of them arrived after 13.00. None of them were received after 17.00. Across the Relevant Period, the Desk only did four cash market trades with a 2021 maturity or higher later than 17.30, and only two of these occurred on a Friday.

In F31 Mr Lopez placed a Large Order to buy 400 lots at 17:46.21.136 on Friday 10 June 2016, which would have required an RFQ of close to €40 million ten-year BTPs. He described this as being placed to “service client buy orders that I expected to receive in the immediate future”, but we agree with the Authority that he cannot reasonably have expected any client interest before Monday morning. Mr Lopez also placed the following Large Orders late in the day:

F132 took place on the date of the Brexit referendum, and Mr Lopez explained his Large Order as being that he thought other market participants would seek to square their positions ahead of the vote, ie de-risk their books. His own apparent decision to take this level of risk at the end of the day is not only inconsistent with his own approach to managing risk on his book, but with what he says he was expecting other market makers to do.

The Authority submitted that placing these Large Orders at this time of day was also exposing him to considerable directional risk at the worst time of day, and said that if the Large Orders in F31 and F56 had traded and he held the position overnight he would have lost €112,000 and €60,000 respectively. We accept this point on directional risk; but recognise that the size of these orders were each within the Desk’s limits.