UK Trader Arrested for Making a Bit Too Much Money in 2010's "Flash Crash"

By Gary Cutlack on at

The US Department of Justice would very much like UK-based trader Navinder Singh Sarao to come to the US for a holiday, where he'll be charged with a variety of fraud offences relating to the "flash crash" of 2010 -- which saw the Dow Jones index plummet by 600 points in a matter of minutes.

The Department of Justice says the Hounslow man used an automated trading program to engage in the activity of spoofing -- initiating share trades but with no intention of going through with them -- in an attempt to manipulate stock prices. It all worked a bit too well, allegedly, with Sarao hitting the E-Mini S&P 500 futures contracts so hard he was able to make "significant profits" for himself while momentarily throwing the larger index into confusion.

If you fancy having a go yourself, the DoJ explains Sarao's technique with: "By allegedly placing multiple, simultaneous, large-volume sell orders at different price points -- a technique known as 'layering' -- Sarao created the appearance of substantial supply in the market.  As part of the scheme, Sarao allegedly modified these orders frequently so that they remained close to the market price, and typically canceled the orders without executing them."

This made the price plummet because of reasons we shan't bother pretending to understand, letting Sarao sell contracts in order to buy them back at a lower price. And thus, some money was created by magic in the bizarre financial world.

The DoJ says Sarao is guilty of wire fraud, commodities fraud, commodities manipulation and spoofing, for which the US would very much like him extradited on the next Virgin Atlantic departure. [Department of Justice via Ars]