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

The Authority addressed the use of terminology by the Traders and Mr Kasapis:

The different terminology was used by the Traders at different times, and there was sometimes a degree of inconsistency. The Tribunal accepts that “pre-hedging”, or “pre-positioning” (the term sometimes used by Mr Creaturo), is a hedge in anticipation of a specific client trade, and it is a form of “anticipatory hedging”. The latter term can be used in a broader sense, whether the prospect of an incoming client order or anticipated market movements based on market intelligence.

Mr Lopez’s description of his strategy was one of anticipatory hedging. The Tribunal accepts that a strategy of anticipatory hedging can be a legitimate trading strategy. Mr Jaffey referred to Mr Heiberg having accepted in his interview with the Authority that anticipatory hedging is the only way where you can have a competitive desk, referring to traders having a portfolio ready to sell to clients. However, Mr Heiberg was being asked about trading cash bonds off the back of client enquiries, where he was making clear that the Desk may also be acquiring bonds that they anticipated they could sell to a client, and the need to try and predict what may be interesting for an asset manager. He was not talking about acquiring Futures positions in this context.

The Desk’s Mandate permits anticipatory hedging, but sets out the meaning which applies for that purpose, providing that transactions in hedging instruments must not be conducted where they increase the Desk’s market risk exposures, other than “in anticipation of a highly likely near term exposure to risk, where there is a sound risk management rationale for such anticipatory hedging”. We address separately whether we consider that the Anticipatory Hedging Strategy was within the scope of anticipatory hedging as permitted by the Mandate.