The US Department of Justice has unsealed its indictment for Navinder Sarao, the trader alleged to have caused, at least in part, the 2010 Flash Crash – which saw trillions of dollars momentarily wiped from stock markets.
Through the use of algorithms, often referred to as High Frequency Trading, Sarao is said to have placed large orders on certain stocks, leading to prices to surge and then cancelling his order and selling shares at a higher price, a form of market manipulation known as spoofing.
Many have been quick to point out that Sarao’s trades actually took place before the Flash Crash and could not have actually caused it
Many have been quick to point out that Sarao’s trades actually took place before the Flash Crash and could not have actually caused it – leading to accusations that the various US government agencies and financial regulators pursuing him are engaging in witch-hunt, and using him as a scapegoat.
However, even if he did not cause the crash in question, the evidence in the indictment suggests that he was consciously manipulating markets through spoofing.
In one email from 2009 he wrote that “If I am short I want to spoof it (the market) down, so I will place offer orders … at the 1st offer and 2nd offer and an order … into the 1st bid. These will not be seen.” Another sees him write to an unidentified programmer “I have got the [program] running. We now need to make it workable in terms of me moving the market like we discussed.” At one point he directly refers to his intention to spoof markets: “I need to know whether you can do what I need, because at the moment I’m getting hit on my spoofs all the time and it’s costing me a lot of money.”
A number of times Sarao was questioned concerning his trading behaviour. At one point the CME pulled him up on the large number of trades he had cancelled, for which he apologised by claiming he was ““just showing a friend of mine what occurs on the bid side of the market almost 24 hours a day, by the high frequency data geeks”.
Dubbed the “Hound of Hounslow,” Sarao was taken into custody from his West London home in April 2015. According to City Wire, he “faces a maximum prison term of 380 years if he is found guilty.” The US Commodity Futures Trading Commission is also pursuing civil charges against Sarao.
