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

Mr Shivji submitted that placing large orders away from the touch in full visible size and assuming or hoping that the market comes to you is fundamentally flawed logic. All other things being equal, the most likely effect of Mr Lopez placing a Large Order close to but offset from the touch would be to move the market away from him.

The key point in the Authority’s submission in this context is that Mr Lopez did not iceberg his Large Orders. This contrasts with Mr Lopez’s trading style in respect of the Small Orders, where he would iceberg the Small Orders even for, eg, five lots which he iceberged to three in F56.

There are two different issues which arise in this context:

The Tribunal has set out its conclusions on market impact at [393] above, which included that the Large Orders were each likely to give the impression or signal of significantly increased supply or demand, and that the most likely market reaction would be for the market to move in the opposite direction, away from the Large Orders. This conclusion applies to Mr Lopez’s Large Orders of 200 lots, which did create a volume skew in the Specified Instances.

Mr Lopez’s evidence was that iceberging would slow down the execution of an order, as each slice that is entered as the order trades will be placed at the back of the queue at that price point. He would typically iceberg his small hedging orders as he was happy for the order to execute slowly, as this provided an opportunity for a client cash order to come the other way (which may have repositioned his book or altered his hedging needs) and he could amend the price of the hedge as it executed. Mr Jaffey also submitted that latency in MHI’s computer systems could further delay the additional slices being sent to the queue.

Whilst the Authority accepted Mr Lopez’s description of the mechanics of how the slices of an iceberged order are entered, Mr Shivji submitted that this proposition was turning the mechanics of placing an iceberged order (which was agreed) into its rationale, and that an iceberged order could execute very quickly.

Mr Kasapis and Mr Creaturo both gave evidence on the rationale for iceberging an order, the impact on visible liquidity, expectations of market participants and execution.

Mr Creaturo’s evidence was that the advantage of iceberging is that this prevents other market participants from seeing the full size of the order and being able to take advantage of this information, resulting in the market moving in the opposite direction from the order. He said you iceberg orders so they fit with general liquidity at the time you wish to trade so it does not stand out. We accept that this is an advantage of iceberging orders and a reason that traders would iceberg an order.

Of itself, this does not necessarily preclude there being additional benefits of iceberging an order, and Mr Creaturo accepted that there can be an “element of optionality” to iceberging, allowing you to make adjustments to the order.

The Tribunal finds:

On this basis, we do accept in principle that iceberging an order may result in it trading more slowly than an uniceberged order; and that avoiding this may be a reason not to iceberg an order.