Quick Facts
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Fine Amount: £223,400 (Mr Urra); £100,000 (Mr Lopez); £57,600 (Mr Sheth)
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Primary Violation: Spoofing
- Regulator: Financial Conduct Authority (FCA) / Upper Tribunal (Tax and Chancery Chamber)
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Relevant Period: 1 June 2016 > 29 July 2016
- Fine Date: 1-Jul-25
Overview
The Upper Tribunal dismissed appeals by three traders at Mizuho International Plc, Mr Diego Urra, Mr Jorge Lopez Gonzalez, and Mr Poojan Sheth, against FCA Decision Notices issued on 31 October 2022.
The Tribunal upheld the FCA's findings of deliberate market abuse in Long-Term Italian Government Bond Futures (BTP Futures) on the Eurex Exchange, involving 233 instances where large orders were placed to create false or misleading signals of supply or demand, facilitating smaller orders on the opposite side.
Details of the Case
The case centred on trading activity in BTP Futures by the three traders on MHI's European Government Bonds (EGB) Desk during a two-month period in 2016. The FCA alleged that the traders engaged in an abusive strategy, placing "Large Orders" (at least 200 lots) on one side of the order book to give false or misleading impressions of market intention, solely to aid the execution of "Small Orders" (generally fewer than 200 lots) on the opposite side.
Once the Small Orders executed, the Large Orders were typically cancelled quickly. This conduct was deemed market manipulation as it falsely signalled supply or demand without genuine trading intent.
The traders denied deliberate abuse, claiming the Large Orders were part of legitimate strategies: Mr Urra and Mr Sheth cited an "Information Discovery Strategy" to gauge market depth, while Mr Lopez referenced an "Anticipatory Hedging Strategy" linked to potential client trades in cash BTPs.
However, the Tribunal found these explanations implausible and inconsistent with the trading patterns, concluding the activity was intentional, repeated, and dishonest. The instances were categorised into Single Trader Instances (involving one trader) and Multi Trader Instances (involving collaboration among two or more).
A total of 341 Large Orders were identified across 233 instances. The Tribunal also considered factors such as market liquidity, the potential impact of Large Orders on other participants, and the traders' awareness of market abuse risks from prior training.
WORKED EXAMPLES
Instance Pool Composition
The FCA identified 233 abusive instances involving 341 Large Orders. For Mr Urra, this included 31 Single Trader Instances and 97 Multi Trader Instances, totalling 135 Large Orders; for Mr Lopez, 41 Single Trader Instances and 84 Multi Trader Instances, totalling 55 Large Orders; for Mr Sheth, 47 Single Trader Instances and 57 Multi Trader Instances, totalling 151 Large Orders.
- This breakdown highlighted patterns of overlap, with Multi Trader Instances suggesting collaboration to amplify misleading signals.
- Large Orders were placed away from the "touch" (best available price) and cancelled rapidly, reducing execution risk while influencing market perception.
Trading Pattern in Multi Trader Instances
In Multi Trader Instances, traders placed concurrent Large Orders on the same side, overlapping with Small Orders on the opposite side placed by one or more of them.
- For example, the Tribunal noted that such overlaps created amplified false signals of supply or demand, facilitating Small Order execution.
- Across the 233 instances, Large Orders were rarely executed (e.g., designed to avoid trading by being positioned sub-optimally), with cancellation occurring shortly after Small Orders filled.
- 138 instances involved collaboration, representing over half of the total pool.
Size and Cancellation of Large Orders
Large Orders ranged from 200 to 500 lots but were defined as "medium-sized" by traders; however, the Tribunal found they were large enough to influence market participants in a low-liquidity environment.
- Orders of 200, 450, or 500 lots were placed but quickly cancelled post-Small Order execution, with no genuine intent to trade.
- In the instance pool, 341 such orders were placed, with patterns showing they were not at competitive prices, leading to minimal fills (e.g., partial executions rare and unintended).
Relevant Period Trading Activity
During the two-month period, the traders repeated the pattern 233 times, with Large Orders overlapping Small Orders in all instances.
- On multiple occasions, a trader would place a Large Order, followed by a colleague's Small Order on the opposite side, leading to quick execution and cancellation.
- The activity occurred between 1 June 2016 and 29 July 2016, with instances clustered in low-volume periods to maximise impact.
- The Tribunal referenced the traders' explanations as inconsistent, e.g., claims of hedging potential client RFQs (requests for quotes) lacked evidence of imminent trades.
Fines and Penalties
The Tribunal upheld the prohibition orders but adjusted the financial penalties as follows:
- Mr Urra: £223,400
- Mr Lopez: £100,000
- Mr Sheth: £57,600
Key Quotes
"The Traders deliberately engaged in market abuse, and that this conduct was dishonest and lacked integrity." (From the Tribunal's conclusion in the Introduction and Summary section.)
"This conduct gave false and misleading signals to the market as to demand and supply. It amounted to market manipulation." (From the description of the abusive strategy in the Decision Notices section.)
"The abusive trading strategy was such that it was unlikely the large misleading orders would themselves trade; notably, they were placed away from the touch and were quickly cancelled." (From the outline of the Authority's case in the Decision Notices section.)
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