David John Hobbs v FSA (FS/2010/0024) The Upper Tribunal (Tax & Chancery Chamber)


On 28 July 2010, the FSA issued a Decision Notice to Mr David John Hobbs fining him for market abuse and imposing a prohibition order on him under section 56 FSMA. The Upper Tribunal overturned the decision on the basis that the trade was carried out for legitimate reasons.


Mr Hobbs was a proprietary trader at Mizuho International plc. He was approved by the Authority as an investment adviser under CF21 and conducted proprietary trading for Mizuho in London International Financial Futures and Options Exchange (LIFFE) coffee futures and associated derivatives.

In September 2007, Mr Hobbs instructed Mr Andrew Kerr, a commodity broker at Sucden Ltd, to place a limit buy order for 600 lots of coffee futures on the Euronext LIFFE exchange. The trade was executed by Mr Kerr two seconds before 12.30pm, when the coffee future call and put options expired and shortly before the market closed. The effect of the trade was to increase the price of the September 2007 coffee futures from US$1745 to US$1757. This also resulted in the coffee options reference price (CORP) being set at that level. Mr Hobbs explained that his motivation for entering into the trade was solely to reduce his short position.

The FSA considered whether Mr Hobbs’ conduct constituted a “manipulating transaction” under section 118(5) FSMA; whether pursuant to section 123 FSMA a financial penalty should be imposed on Mr Hobbs in respect of this conduct; and whether it was justified in imposing a prohibition on Mr Hobbs under section 56 FSMA.

On 28 July 2010, the FSA issued a Decision Notice, fining Mr Hobbs £175,000 for conduct constituting market abuse under section 118(5) FSMA and imposing a prohibition order on him under section 56 FSMA. The FSA made its decision on the basis that Mr Hobbs instructed Mr Kerr to enter into the trade which resulted in an impact on both the September 2007 coffee futures price and CORP which gave a false and misleading impression of the price and secured a price at an abnormal and artificial level. The FSA did not consider that the trading was undertaken for legitimate reasons nor that it was in conformity with accepted market practices.

On 18 August 2010, the decision was referred to the Upper Tribunal for consideration.


After a thorough investigation of the conversations between Mr Hobbs and Mr Kerr on the morning of the trade in question, the Upper Tribunal held that Mr Hobbs carried out the trade for legitimate reasons (to reinstate his short position on the trade). Whilst Mr Hobbs’ behaviour was deemed one of bravado and cast him “in very poor light”, it was in conformity with the accepted market practices on the coffee futures market. In addition to this, Mr Hobbs made no profit from the transaction and the trade was relatively modest. The Upper Tribunal directed the FSA to take no action against Mr Hobbs.


Financial institutions should be aware of the Upper Tribunal’s approach to market abuse cases in light of any investigations into the activities of current or ex-employees. This case demonstrates that the FSA does not always interpret market activity correctly which may result in its market abuse decisions being overturned by the Upper Tribunal. This is an encouraging decision for individuals seeking to refer such decisions to the Upper Tribunal.