Slashdot Mirror

← Back to Stories (view on slashdot.org)

Futures Trader Arrested For Causing 2010 'Flash Crash'

Posted by Soulskill on from the moving-at-the-speed-of-government dept.

New submitter dfsmith writes: Apparently the "Flash Crash" of the stock market in May 2010 was perpetrated by a futures trader in the UK. The US Justice Department alleges that he used a "dynamic layering scheme" of large-volume sell orders to confuse other buyers, hence winning big in his futures trades. "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. When prices fell as a result of this activity, Sarao allegedly sold futures contracts only to buy them back at a lower price. Conversely, when the market moved back upward as the market activity ceased, Sarao allegedly bought contracts only to sell them at a higher price."

3 of 310 comments (clear)

  1. Allegedly by sexconker · · Score: 1, Informative

    Allegedly allegedly allegedly allegedly.

  2. Re:So? by QuasiSteve · · Score: 5, Informative

    I'm far from a lawyer, but:

    As long as you place trades on the book that you're willing to fill

    The 'willing to fill' part might be key - as he had no intentions of filling the orders that led to the mini-panic, using them solely to affect the price for personal gain.

    Defendant willfully and knowingly, having devised and
    intending to devise a scheme and artifice to defraud, and for
    obtaining money and property by means of false and
    fraudulent pretenses, representations, and promises    , did
    transmit and cause to be transmitted by means of wire
    communication in interstate and foreign commerce,
    writings, signs, signals, pictures, and sounds for the
    purpose of executing such scheme and artifice.

  3. Re:So? by jklovanc · · Score: 1, Informative

    As long as you place trades on the book that you're willing to fill based on the rules of that market there's no reason why you should be called a 'crook' for that.

    He didn't do that.

    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.

    He places many sell orders with no intention of filling them. While it is fine to cancel an order it becomes manipulation when one places and cancels many orders.