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

Mr Urra’s evidence was that he was pursuing what we refer to as an “Information Discovery Strategy” – MHI was a small market player, with less visibility over market activity and had an information disadvantage. He believed that clients might split a large order across more than one market maker and not tell each one that a larger order was being worked. By withholding the size of the total order, clients could benefit from more favourable pricing, before the market makers recognised the true extent of the trading activity. The risk to the EGB Desk was that it would not have a complete understanding of the price request and the market, and as a result the EGB Desk would misprice the trade. In this situation, other market makers, dealing with a possibly much larger part of the same client order, might now be exposed to significant risk and be looking to hedge their position promptly. He tried to test ways to exploit that situation, and theorised that what he described as a medium-sized order for Futures offered at a premium might be tempting for such a market maker. He had practical experience of such trades having occurred previously. In anticipation of demand, he placed a medium-sized order for Futures, with a direction based on the direction he expected the market maker would want to trade, and selected its price at a level he thought would be of interest to the market maker but represented a good deal for him if the order was transacted.

Mr Sheth’s evidence was that he was also pursuing this “Information Discovery Strategy”, which he said had been shown to him by Mr Urra in May 2016 when Mr Urra had placed an order (on 12 May 2016) of 450 lots in Futures which filled. Mr Urra had explained to him that there were two reasons for the strategy – to obtain information as to whether there was hidden liquidity in the cash market and to create profitable positions – and had encouraged him to try it. Mr Sheth explained the Multiple Large Orders he placed as being “poor practice” and a mistake, arising as a result of his inexperience and lack of training in operating Bloomberg Escalator.

Mr Lopez’s evidence was that he was pursuing an “Anticipatory Hedging Strategy”. He was looking ahead to what he predicted to be likely client demand, ie RFQs from clients, with particular emphasis on those of medium-size, and seeking to position his trading book and inventory of bonds to service that demand and be able to offer competitive prices. This was a constant process of assessing the levels at which anticipatory hedges would be attractive, relative to the RFQs he expected the Desk to receive.