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

There was said to be an information benefit to MHI resulting from placing the Large Orders, irrespective of whether or not the Large Order traded. This was said by Mr Urra and Mr Sheth to be one of the two benefits of the Information Discovery Strategy (the second being the prospect of a profitable position if the Large Order traded).

Eurex is an anonymous Exchange. If the Large Order traded, Mr Urra or Mr Sheth would not know who had transacted or why; it could be entirely unrelated to the RFQ which had been received by MHI. Mr Sheth accepted that he could not be certain that a client was splitting orders, but said he would be entitled to a “high confidence guess” in this scenario that MHI’s client was splitting an order. We consider that to be entirely unrealistic. One obvious alternative explanation would be that the filling of the Large Order would have been triggered by a market maker hedging a cash trade following a different, larger RFQ from another client that had not been seen by MHI (given that MHI only saw a small proportion of RFQs and RFQs of smaller sizes than other larger market makers).

Furthermore, even if the trading of the Large Order had been a result of MHI’s client splitting its order (which would not be known), this would not inform Mr Urra or Mr Sheth as to the underlying size of the client trade or its likely approach in the future. This is particularly the case where the client of MHI who had sent the RFQ was itself a clearer or broker, such as ICBC and Pershing Securities Ltd (“Sigma”), as they may be acting for a different client when they next approached MHI with an RFQ.

Where a Large Order did not trade, this would not inform the Desk as to whether the client was splitting its orders. The client may have shown MHI the full size. They may have split their order, but the other market maker may have either not hedged in Futures, or hedged with the Futures that were available at or closer to the touch, eg in F47 (Mr Urra), there are about 250 lots that are visible ahead of the Large Order of 490 lots and the actual liquidity would not be known (to other market participants or to Mr Urra when placing the Large Order).

Mr Shivji submitted that there was in any event no need to place the Large Orders to test whether clients were splitting orders. He submitted that MHI could have asked the client, or the broker, whether it had more to do; MHI could have observed by watching the volumes traded on Eurex at each price point straight after an RFQ was received; or MHI could have placed smaller sizes closer to the touch to see how quickly they traded (based on Mr Creaturo’s evidence).

We accept that all market participants could see traded volumes on the Exchange; this might, if patterns were observed over time, provide some information, although we agree with Mr Sheth that the “signal” of others buying and selling could get lost in the noise of the market if they were hedging over time. Similarly, we agree that MHI could have asked the brokers for information. However, we agree with Mr Urra and Mr Sheth, as a matter of commercial sense, that a client seeking a price from MHI for their own desk would not, if asked, disclose if they were splitting their order.

However, whilst there are deficiencies in the other methods available to obtain information, the Tribunal is not in any event persuaded that MHI would obtain an information benefit from placing the Large Orders.