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Futures Trader Arrested For Causing 2010 'Flash Crash'
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."
This is just smart trading. I know 100 guys that COULD do this, assuming they had the requisite margin. 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.
"Malo periculosam, libertatem quam quietam servitutem." -- Jefferson
Perhaps, just maybe perhaps, something that is inherently broken should be broken. As a means by which to increase the prices of commodities, not to the benefit of producers or to the benefit of end consumers purely to create an artificial point by which disgusting individuals can insert themselves into the transaction and claim that price increase as profit for doing nothing other than speculating and seeking purposefully manipulate the price. It ain't stupid to try to eliminate the current commodities pricing scam.
Chaos - everything, everywhere, everywhen
Easily tracked and easily identified US "fugitive" bankers who caused the crash and have Interpol warrants for their arrest are living high and mighty in Switzerland meanwhile.
(sources: Bloomberg, WSJ, and Marketwatch)
So can we actually believe this "person responsible" is not just a sacrificial lamb who will end up pardoned anyway, without doing any actual jail time?
Just saying.
-- Tigger warning: This post may contain tiggers! --
...The markets aren't there for this sort of thing, they're primarily there to fund businesses.
You are making me laugh - the joke of the day!
Mark parent up as funny!!
That's stupid. You only need to delay settlement by seconds, force the buyer to hold for 6 minutes, and the HFT system is broken.
Or you could levy a truly minimal transaction tax, even processing fee for orders executed in than 250ms from offer to buy to re-offer... Maybe.
But thinking you should force holding stock for days means you need to suspend trading when any news breaks. Which halts the market.
Just slow HFT by milliseconds.
Oh, and audit brokers. If they persist in offering stock they actually don't have, perhaps that's a problem? This whole episode sounds like NASDAQ, except they seem to have the stock.
The argument by HFT traders is that reduces the liquidity and efficiency of the stock market.
They are right in the effect. However, you never see anyone take it to the next step. Do we NEED to market to be THAT liquid?
I, personally, think that the market is currently too liquid if flash crashes can that easily take place on fake orders. It means that the HFT programs are reacting even before the trades have been completed. I agree that they need to be slowed down.
You can buy a penny stock. You have a First Amendment right to talk it up on penny stock forums. You can then sell for a profit. No single step is illegal. But if the police prove you intended to pump and dump it you have committed a crime. The whole process, taken together, is a crime if they prove you were trying to convince a bunch of idiots to do something stupid (ie: buy your $.05 penny stock for $0.25) that a) cost them money while b) earning you money. You manipulated the market for your personal gain, and that's bad.
This guy made a series of perfectly legal moves that had the effect of a) costing a bunch of idiots to lose money in the Flash Crash while b) he gained money.
well allegedly they're not even certain why it would be illegal for him to have done so.
the real problem isn't his tactic.. it's the way the markets allow for robo traders in the first place. if it was legal for him to do algorithmic trading, why this algo was illegal?
world was created 5 seconds before this post as it is.
so the crime he was committing was making money for himself instead of for Goldman Sachs.
I think it tells us everything we need to know about how corrupt our society has become.