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'Flash Crash' Trader Navinder Sarao Faces US Extradition
mrspoonsi writes with this excerpt from the BBC: Navinder Sarao, the trader accused of helping to trigger the U.S. "flash crash," can be extradited to face trial, a court has ruled. Mr Sarao traded on the Chicago Mercantile Exchange from his parents' home near Heathrow Airport in London. Mr Sarao, 37, is accused of contributing to events on 6 May 2010, when the Dow Jones share index briefly fell more than 1,000 points. The flash crash on 6 May 2010 temporarily wiped nearly $1 trillion off the value of shares. US authorities want Mr Sarao to stand trial on 22 criminal counts. They allege he is guilty of "spoofing" — the practice of placing large orders that manipulate the markets and then cancelling or changing them, allowing him to buy or sell at a profit. Mr Sarao's spoofing netted him a profit of $40m (£28m), they argue. The charges that Mr Sarao faces carry sentences totalling a maximum of 380 years.
Reader whoever57 links to a similar report at the New York Times, which notes "This is not the last step for Mr. Sarao, as the extradition must next be reviewed by the Home Secretary." "As the submitter," writes whoever57, "it's not clear to me how this man did anything different from the high-speed and algorithmic traders do every day."
"it's not clear to me how this man did anything different from the high-speed and algorithmic traders do every day." . He deliberately made orders that he had no intention of following through on in order to manipulate the market in a illegal manner. How the fuck is that hard to differentiate between that and high-speed traders? I don't like High frequency trading algorithms but they were well within the law and were exploiting their speed at reacting to market rather than deliberately manipulating the market. The difference is not small or subtle, one is clearly illegal market manipulation, one is ethically questionable and unfair but legal.
That's not what this article says. Only 3.2% of the orders placed in the stock martket actually go through. That was the second quarter of 2013, well after the 2010 flash crash. And on some exchanges a whopping 99.76% of orders is canceled.
Quote from that link: "High frequency trading firms have been known to flood the market with orders, trying to determine the price institutional or retail investors are offering, then cancel 90% of them a split-second later. This can artificially alter the price of a security, netting high-frequency traders profits at the expense of their counterparties."
There are orders types that are immediate-or-cancel. You send this order to the exchange and if it can not trade because there is no opposite order then it is automatically cancelled by the exchange. These orders are different from spoofing orders as immediate-or-cancel orders are not shown to the public unless they actually trade.
If these cancelations are counted, then this number is very logical, since when over a hundred traders want to trade for a certain price, only one of them will succeed.
Also other orders that are shown to the public but are not there for a good price won't trade for a long time, eventually those orders need to get another price (cancel the current order then create a new order on the new price).
There is a generic rule that at least european exchanges hold to: "Any order that you send to the market is intended to trade". If they find traders that do not follow this rule then the trader gets a warning, if the trader does not change they will get fines or be banned from the exchange. Many exchanged have rules a lot stronger than the laws in those countries, and exchange rules have a bigger bite as the exchange can more easily punish traders.