Daily Management Review

London Trader Helped Cause 2010 “Flash Crash”, Accuses US


02/04/2016




London Trader Helped Cause 2010 “Flash Crash”, Accuses US
A prosecutor for U.S authorities seeking his extradition claimed on Thursday that a London-based trader's market manipulation helped cause the 2010 Wall Street "flash crash" which netted him some $878,000 profit.
 
Indicted by a U.S. federal grand jury on 22 criminal counts including wire fraud, commodities fraud and attempted price manipulation, Navinder Sarao who was arrested by British police on a U.S. warrant last April, has denied any wrongdoing.
 
Sarao had used modified computer software to "spoof" the Chicago Mercantile Exchange (CME) market by placing buy or sell orders that were modified millions of times and then canceled before they could be executed, says Mark Summers, for the United States.
  
Sarao placed genuine orders after having manipulated the market making a large profit in the process.
 
The flash crash on May 6, 2010 when the Dow Jones Industrial Average briefly plunged more than 1,000 points was caused and helped by Sarao's actions which had helped result in market instability which spread from the CME Summers said. The plunge in Dow Jones temporarily wiped out nearly $1 trillion in market value.
 
"The government alleges that the defendant on this day was heavily engaged in his spoofing activities," Summers told Westminster Magistrates Court in London at the start of Sarao's two-day extradition hearing.
 
"He was, through that activity, contributing to that market imbalance. Along with other factors that were happening on that day, that market imbalance contributed to the flash crash," he added.
 
The maximum U.S. sentences for the charges of which Sarao is accused amount to more than 350 years in prison if he is extradited and convicted.
 
The Briton was running a one-man operation, Nav Sarao Futures Ltd from his parents' home near Heathrow Airport in west London, Summers said. By modifying or cancelling, he had used his specially adapted software to keep his trades from being executed.
 
"If I'm short I want to spoof it down," Sarao wrote in an email to the computer programmer.
 
Accounting for 42 percent of all modifications on the CME that day,  Sarao had placed orders which were modified 7.4 million times, Summers told the court that on May 4, 2010.
 
Some of his orders were being executed, he complained, as the system was not foolproof. He said in another e-mail he was "getting hit on his spoofs and it was costing him too much money," Summers said.
 
While his biggest single day's profit from alleged spoofing came on Aug. 4, 2011 when he made $4 million, on the day of the flash crash, however, he made $878,000.
 
"Overall he made some $40 million by spoofing ... the market from his home ... in London," Summers said.
 
The orders he placed were genuine and that because his conduct was not criminal in Britain, he should not be extradited, said Sarao’s lawyers in court papers. The decision must be ratified by Britain's interior minister Theresa May, if the judge approves extradition and it was very likely Sarao would appeal, said his lawyer.
 
(Source:www.reuters.com) 






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