Decision maker

The Upper Tribunal

Individuals

Jorge Lopez Gonzalez, Poojan Sheth, Diego Urra

Related decisions

The FCA had previously published Decision Notices in relation to the individuals. 

Sanction

Prohibitions and fines as follows:

• Urra: £223,400
• Gonzalez - £100,000
• Sheth - £57,600

In coming to these figures, the Upper Tribunal agreed with the FCA that the seriousness of the conduct merited level 4 but reduced two of the penalties proposed by the FCA for the following reasons:

• Mr Urra’s penalty was reduced by basing the calculation on income he had earned in the 12 months prior to the end of the period in which his conduct occurred (and excluding sums received by him in that period but earned in a prior period);
• Mr Sheth’s penalty was reduced from the usual minimum of £100,000 “in the interests of fairness and justice”, taking into account the level of his income in comparison to that of the other two and having regard to proportionality.

Provisions

Section 118 FSMA 2000; and

Article 12 and Article 15 of the Market Abuse Regulation

Facts

The case focused on certain orders placed by the traders, between 1 June 2016 and 29 July 2016, which were larger than and opposite to other orders they placed on the other side of the book and which were cancelled before they were traded (in circumstances where the timing of the cancellation coincided with the smaller orders trading). 

The traders made a number of submissions in defence of their conduct including that they were variously engaged in particular trading strategies referred to as the information discovery strategy and the anticipatory hedging strategy: 

1. the information discovery strategy involved placing orders in anticipation of demand from market makers looking to hedge their positions with a view to obtaining information about hidden liquidity and creating profitable positions;
2. the anticipatory strategy included looking ahead to what the trader predicted to be likely client demand and seeking to position his book to meet that demand and be able to offer competitive prices (this is different from ‘pre-hedging’ which involves trading after receipt of information about an anticipated client trade and before execution which can give rise to concerns such as around conflicts – and which has been the subject of a November 2024 consultation by IOSCO).

Findings

Market manipulation arises from trading activity which gives a false or misleading impression or signal as to supply, demand or price.  It does not matter whether the trader intended to manipulate the market or give any particular signal.  However, the question of whether the signal given (or likely to be given) was false or misleading may entail subjective analysis because falsity depends on intention.    

A key question was therefore whether, when placing the larger orders, the traders intended to trade because, if they did, those orders were not giving false or misleading signals.

In rejecting the trader’s explanations, the UT concluded that both strategies seemed implausible and there were inconsistencies in execution:

1. the information discovery strategy was not a plausible response to being at an information disadvantage for various reasons including because it was not logical to place a large order away from the touch and expect the market to come to the order – the existence of the order would have a tendency to push the market the other way.  It also appeared to be unsuccessful which raised a question about the likelihood of it being pursued;
2. the anticipatory hedging could be a legitimate strategy but, in considering whether it was the reason for the relevant trades, the UT took into account a number of factors including that: 

• it involved taking directional risk which was at odds with relevant trader’s other trading activity and the business and so there were reasons to doubt he would have been pursuing it; 
• the unpredictability of client demand meant he ran the risk of ‘going underwater’ and was prevented from quoting competitively in both directions;  
• it did not explain certain large orders; 
• the trader did not change the strategy when the market moved against him and it was unsuccessful; 
• there was a repeated obvious and striking pattern of coincidence of the timing of the cancellation of the large orders shortly after the small orders filled. 

The UT concluded that all three traders had engaged in market abuse through spoofing and also that they were dishonest and so should be prohibited.