UT/2024/000002 - [2025] UKUT 00188 (TCC)

CBNA submitted that certain findings of fact made by the FTT were inconsistent with its overall conclusion that the services provided were administrative or technical in nature. In particular, CBNA relied on paragraph [36] of the FTT’s decision, which recorded that:

“The QR, Technology, Operations and Market Risk functions work together to provide a specific combination of BD Services to each business area. As Mr Richardson explained, the trading infrastructure is made up of a: ‘…complex web of different systems, trading platforms and applications, as well as large number of specialist employees that together perform many of the key functions that are required in order to carry out the transaction entered into by SPLC.’”

However, we do not accept that there is any inconsistency. The FTT’s reference to functions “required in order to carry out the transactions” does not imply that those functions themselves constituted exempt transactions in securities. The legal test is not one of necessity but of whether the service alters the legal and financial position between the parties. The fact that a function is operationally required does not, of itself, satisfy that test.

CBNA further argued that the FTT made findings which, properly understood, indicated that the services did alter the legal and financial relationship between SPLC and its clients. It pointed to findings at [160] and [184], which referred to execution algorithms, developed and maintained by QR, automatically executing transactions deciding ‘how, when and where’ to place orders, many of the functions performed (in whole or part) by trading infrastructure.”

It also relied on [169], which found that:

“Functions which ‘build and transfer those [client] transactions’ are performed (in whole or in part) by the trading infrastructure.”

And at [228]–[235], CBNA refers to the fact the FTT recorded at [235] that:

“In some cases a hedging transaction is undertaken by CBNA (on behalf of SPLC) which nevertheless remains the contracting party, on a fully automated basis known as “auto-hedging”. In those circumstances the decision to hedge is made by a CBNA system using QR algorithms and that system instructs another CBNA system to execute the trades.”

CBNA also submitted that its role in setting prices or determining pricing mechanisms altered the legal and financial situation. It further argued that execution algorithms implemented trading strategies within trader-set parameters ([160], [184]). The FTT had found that as to price setting: “CBNA makes and implements those decisions.”

In our view there is plainly no inconsistency between these findings and the FTT’s overall conclusion. The use of automated systems and algorithms, however sophisticated, does not alter the fact that the legal relationship is formed and executed between SPLC and its client or the relevant counterparty. As explained in FTT [160(1)] the execution algorithm makes decisions on the placement of orders. Similarly it is clear from [235] that SPLC remains the contracting party to the hedge albeit the decision to hedge is made by the CBNA system. The infrastructure supports the transaction but does not itself constitute its execution. Making a decision to implement a transaction is not the same as carrying out the transaction itself.

Similarly, CBNA argues its role regarding the allocation of orders between accounts ([189], [190]) effected a change in legal relationship in respect of the relevant client. It likens its role to that of the service provider in ATP Pension Service AS v Skatteministeriet (C-464/12).In that case it was held the creation of accounts by the service provider there established rights of pension customers in relation to pension funds – appearing to transform the worker’s claim against their employer to one held against the pension fund (see [82] referring to [70]). We agree with HMRC however that the allocation performed by CBNA is administrative in nature. CBNA is fulfilling a deal that has already been agreed between SPLC and its client – the legal or financial relationship is already altered as between SPLC and the client – CBNA’s role was in merely reflecting that practically.

Accordingly, we consider that the FTT’s findings of fact were consistent with its legal conclusions and that CBNA’s arguments do not disclose any error of law.