singular_me
22nd April 2015, 03:43 AM
no system is infallible
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‘A British man helped to trigger a £500bn US stock market crash by manipulating financial markets on a massive scale from a suburban London semi, US prosecutors have claimed.
22nd April 2015
Navinder Singh Sarao, 37, is accused of fraudulently making £27 million by using computer programmes to create fake trades on markets linked to the Chicago Mercantile Exchange.
US investigators say he was a major contributory factor to the so-called “Flash Crash” of May 6, 2010, when hundreds of billions of dollars was wiped off the value of the Dow Jones Industrial Average in just five minutes.’.........
The DoJ's charges against Sarao
He has been charged with one count of wire fraud, 10 counts of commodities fraud, 10 counts of commodities manipulation, and one count of “spoofing,” a practice of bidding or offering with the intent to cancel the bid or offer before execution.
The DoJ's investigation was led by the Federal Bureau of Investigations, which looked at his activities between June 2009 and April 2014, but in particular focused on his trading around the 'flash crash' in May 2010.
It is alleged that Mr Sarao "engaged in a massive effort to maniplute" the price of the E-mini S&P 500, one of the most popular financial futures markets which is based on the S&P 500 index which includes household names such as Amazon, Boeing and Bank of America.
The regulator alleges that over a course of five years, and as recently as April 6 of this year, Mr Sarao attempted to manipulate the market by a variety of "exceptionally large, aggressive and persistent spoofing tactics" - jargon for conning the market by placing false trades.
Spoofing tactics
It goes on to allege that Mr Sarao used a computer-based algorithm to essentially pretend to create - or 'spoof' - sell orders, making it appear that there were multiple traders wanting to take a downward bet on the market, when in fact there were none.
The prosecuters accused Mr Sarao of using an automated trading programme to execute the scheme, which they described as "dynamic layering," involving placing a significant number of large volume sell orders at different price points at the same time to make it appear as if substantial supply existed.
Mr Sarao is then alleged to have modified the orders again and again to ensure they were close to the actual market price, only to then cancel them before they were executed.
He then profited from the turmoil which ensued through a series of well-placed bets on the futures market, it is alleged, selling futures contracts and buying them back at a lower price. Some of his actions happened within a millisecond of each other, the FBI says.
The charges have only came to light now, however, following his arrest by the Metropolitan Police on April 21, working in conjunction with the British regulator, the Financial Conduct Authority.
Mr Sarao, who worked alone from his west London home, remains in custody, awaiting extradition to the US on the charges. A US judge has issued an order freezing the assets of both Mr Sarao, and his trading company.
However the DoJ emphasised in its statement that the charges "are merely accusations, and the defendant is presumed innocent unless and until proven guilty".
http://www.telegraph.co.uk/finance/financial-crime/11553433/British-trader-Nav-Sarao-charged-with-triggering-global-markets-flash-crash-in-2010.html
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‘A British man helped to trigger a £500bn US stock market crash by manipulating financial markets on a massive scale from a suburban London semi, US prosecutors have claimed.
22nd April 2015
Navinder Singh Sarao, 37, is accused of fraudulently making £27 million by using computer programmes to create fake trades on markets linked to the Chicago Mercantile Exchange.
US investigators say he was a major contributory factor to the so-called “Flash Crash” of May 6, 2010, when hundreds of billions of dollars was wiped off the value of the Dow Jones Industrial Average in just five minutes.’.........
The DoJ's charges against Sarao
He has been charged with one count of wire fraud, 10 counts of commodities fraud, 10 counts of commodities manipulation, and one count of “spoofing,” a practice of bidding or offering with the intent to cancel the bid or offer before execution.
The DoJ's investigation was led by the Federal Bureau of Investigations, which looked at his activities between June 2009 and April 2014, but in particular focused on his trading around the 'flash crash' in May 2010.
It is alleged that Mr Sarao "engaged in a massive effort to maniplute" the price of the E-mini S&P 500, one of the most popular financial futures markets which is based on the S&P 500 index which includes household names such as Amazon, Boeing and Bank of America.
The regulator alleges that over a course of five years, and as recently as April 6 of this year, Mr Sarao attempted to manipulate the market by a variety of "exceptionally large, aggressive and persistent spoofing tactics" - jargon for conning the market by placing false trades.
Spoofing tactics
It goes on to allege that Mr Sarao used a computer-based algorithm to essentially pretend to create - or 'spoof' - sell orders, making it appear that there were multiple traders wanting to take a downward bet on the market, when in fact there were none.
The prosecuters accused Mr Sarao of using an automated trading programme to execute the scheme, which they described as "dynamic layering," involving placing a significant number of large volume sell orders at different price points at the same time to make it appear as if substantial supply existed.
Mr Sarao is then alleged to have modified the orders again and again to ensure they were close to the actual market price, only to then cancel them before they were executed.
He then profited from the turmoil which ensued through a series of well-placed bets on the futures market, it is alleged, selling futures contracts and buying them back at a lower price. Some of his actions happened within a millisecond of each other, the FBI says.
The charges have only came to light now, however, following his arrest by the Metropolitan Police on April 21, working in conjunction with the British regulator, the Financial Conduct Authority.
Mr Sarao, who worked alone from his west London home, remains in custody, awaiting extradition to the US on the charges. A US judge has issued an order freezing the assets of both Mr Sarao, and his trading company.
However the DoJ emphasised in its statement that the charges "are merely accusations, and the defendant is presumed innocent unless and until proven guilty".
http://www.telegraph.co.uk/finance/financial-crime/11553433/British-trader-Nav-Sarao-charged-with-triggering-global-markets-flash-crash-in-2010.html