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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 $40m (£28m), they argue. The charges that Mr Sarao faces carry sentences totalling a maximum of 380 years.
Reader whoever57 links to a similar report at the New York Times, which notes "This is not the last step for Mr. Sarao, as the extradition must next be reviewed by the Home Secretary." "As the submitter," writes whoever57, "it's not clear to me how this man did anything different from the high-speed and algorithmic traders do every day."
Like anything that happens in the corrupt UK or US, the only thing Sarao is guilty of is not already being a wealthy insider. Algorithmic traders do this exact thing a trillion times every trading day. Banks did soo much worse.. and yet none of the banking executives are sitting in jail.
--- We need more Ron Paul!
You should know by now that sort of behavior is only tolerated at the highest levels. If a normal person figures out how the system works that's bad.
> They allege he is guilty of "spoofing" — the practice of placing large orders that manipulate the markets and then cancelling or changing them
Isnt this standard practice now? Isnt that how most HFT makes money, and it's why retail investors are advised to never place market orders anymore.
That bid for 4.00$? Nah man, j/k. Cancelled. Here's one for 3.99$ though. ...
It's K? ROFL. Cancelled. How about 3.98$?
Still K? kekekekeke. Cancelled. I'll offer you 3.97$
Still K? huehuehue. Cancelled. 3.96.
3.84$. Oh? You wont sell for 3.84$? No prob bro. Here's an order for 3.85$ that I already know that you will take because I just cancelled the order that you tried to fill.
AND SOLD.
K. Now... place a bid for 4.00$ and lets see who's selling.
REPEAT.
"the practice of placing large orders that manipulate the markets and then cancelling or changing them"
If the market systems allow this behaviour then it is a problem with the system. Whether he is guilty of a crime or not is a separate issue (just because you CAN do something doesn't mean it is legal), but if the system allows it to happen then the system needs to tightened down to stop it.
Unless of course those the exploit it regularly with impunity don't want it closed...
Ah, yes, the one fellow who wiped away a trillion dollars of value. What do you call it when something loses a trillion dollars of value, solely due to the actions of the people who hold full ownership of the thing? A bubble.
It seems there's a small class of people from whom, if you shift value to yourself, will guarantee you become a criminal, even an international one. And another large class of people from whom, if you shift value to yourself, will guarantee wealth.
The 2008 mortgage-backed securities fiasco contrasted against this case is very telling. Where's the list of names of who went to prison in 2008-2009? From whom did they make most of their money?
fifth sigma, inc.
The lesson here is do not defraud the rich. They have the power of the government and the law to manipulate to their own benefit. You steal from the poor. You know, like the banks, investment houses, and the insurance companies did and continue to do to you and me. The government will even reward you for be so damn good at it!
"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."
That's the problem you have with this? The problem that I have is that someone is being accused of something he supposedly did outside the U.S. but is being forcibly brought to the U.S. We supposedly can't re-try known murderer O.J. because of double jeopardy. but now anyone who does anything while outside the U.S. can be subject to U.S. extradition! Yea, I read the part about the trading being on the Chicago Mercantile Exchange, but that just tells me that we should lock up the greedy bastards in this country that allow that to happen, otherwise we open our institutions to attack from China or any other nation that we can't extradite from. We have an abundance of crooks in the financial markets in this country that they should be going after who would be far better targets than this American abuse of power.
I'm an American. I love this country and the freedoms that we used to have.
How can real world value change by billions of dollars on a scale of milliseconds? The only real world events that can make that happen are nuclear weapons or meteor strikes. Even a massive earthquake lasts seconds, and huge storms take hours to days to do their damage.
High speed trading is a fictional construct because it creates a version of value that is decoupled from the real world. It is by definition a game that is only available to insiders. That's why incredible amounts of money are spent to build data centers as near as possible to trading hubs, since an advantage of milliseconds makes the difference between success and failure.
It is the opposite of a level playing field. It creates a system where there is a vast gap between insiders and everyone else. There is no free market capitalism with this kind of division of access.
For all the Libertards out there, being able to trade stock is not equivalent to high speed trading. High speed trading makes money on a millisecond scale. Trading outside that realm, even using computers is seconds behind which translates to trading in the past. First mover advantage is available only for the inside players. Free market capitalism doesn't really exist, it's just propaganda to keep the peasants from causing trouble.
Why is Snark Required?
I realize that this is faint praise, but I'd just like to say how delighted I am to see phrases like "They allege he is guilty of "spoofing" - [here's what spoofing is]" and, "Mr Sarao's spoofing netted him a profit of $40m (£28m), they argue."
I've grown accustomed to things like this reported as, "Mr Sarao's spoofing netted him a profit of $40m (£28m)." or, "He has been arrested for "spoofing" - [here's what spoofing is]". It doesn't seem like a big difference but it really is, and this should be a minimum for responsible reporting. Is this thanks to Britain's harsh libel laws? Maybe they're actually good for something.
I hope he posted his software to github.. if Anonymous got ahold of it, there would be too many cases to prosecute and the financial industry would just have to fix things properly.
When one person breaks an unjust law, they usually go to jail. When *everyone* breaks an unjust law, the law needs to be fixed.
CAPTCHA: pleaded
"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.
No they don't, high frequency traders stay within the trading rules and don't spoof/make fake transactions. They merely exploit the advantage of being able to react to the market faster. They are still scum, but there goal is not to manipulate the market to make their gains like the piece of shit in this article.
They're running the systems that saw larger orders/sales and actually crashed the system.
Like anything that happens in the corrupt UK or US, the only thing Sarao is guilty of is not already being a wealthy insider. Algorithmic traders do this exact thing a trillion times every trading day. Banks did soo much worse.. and yet none of the banking executives are sitting in jail.
That's not what the guy did. What he did was place huge orders then cancel them to cheat on quick pricing fluctuations caused by his own fake transactions. This is not only dishonest, this is outright illegal, and it's not something legitimate investment banks do.
Let's not make every story about thieves and scammers a general complaint about the financial services industry otherwise actual issues will get lost in the noise.
lucm, indeed.
A couple of gamblers learned how to push the buttons on a video poker machine in a specific sequence to make them pay off, exploiting a weakness in the software or "system" if you wish.
One wonders is this fellow is in the same situation. He made trades he was legally allowed to make, in a sequence that made him money. Was he an insider? Did he know something someone else did not know? Was he in a position of fiduciary responsibility? We'll find out. But he could use this incredibly simple defense if he's clear of conflicts:
"All these guys did is simply push a sequence of buttons that they were legally entitled to push"
http://www.wired.com/2013/11/video-poker-case/
The Dow Jones IA did the same in August 2015 and the US DOJ did nothing.
Stock exchange trading systems crash every few years (see May 2012), but the stock exchange isn't accused of "contributing to events".
How does this differ from Knight Capital Group and friends, who also place large orders? (See August 2012.)
"... faulty computer algorithms, which sold $4.1 billion worth of E-Mini Standard & Poor’s 500 futures contracts ... "
Just like 'black Monday' (Oct 1987), most of the damage done during the 'flash crash' (May 2010) was caused by computer algorithms caught in a massive loop.
Do they always complete those transactions? Or do they cancel them if the person they want to sell to either cancels their order or buys from another high speed trader?
Since the system gives you the ability to cancel orders, I don't see what the guy did as illegal.
It is within the rules of the game, so it is legal 100%.
How do you cancel an order?
I wouldn't have that option using the "trading" interfaces that poor sap retail investors get to use, would I ?
Who designs a system where orders, once placed, are not locked in?
Sounds like a design flaw in the trading system as a whole.
If he figured out that the technical operation of the trading system is flawed, he should get a prize, and they should fix the friggin' thing.
Where are we going and why are we in a handbasket?
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."
Why does the ability to trade at this speed even exist, apart from letting traders make profits over the backs of companies the stock market is supposed to fund?
This guy placed high-speed order that he had no intent to keep.
How is this different from regular high-speed traders place order stock without any intent to keep any of it?
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You could be a political speech writer. Your post no doubt got some people a bit pumped up. Also like most political speeches, what you said is the opposite of the actual facts.
I'm referring to the factual claims you make such as:
> It is by definition a game that is only available to insiders.
> It is the opposite of a level playing field. It creates a system where there is a vast gap between insiders and everyone else.
> There is no free market capitalism with this kind of division of access.
> For all the Libertards out there, being able to trade stock is not equivalent to high speed trading
Those statements are simply false on the facts. If you want to put your money into high frequency trading trading, you can send it on over to Turner Spectrum or any of the other 200 or so trading funds you can find on Morningstar. I wouldn't recommend it, because HFT doesn't reliably perform any better than a plain index fund, due to the high transaction costs from buying and selling all the time.
It feels good to rant about "Wall Street", yet the fact is, most of that money on Wall Street is someone's retirement savings, and when "a fund" makes money that simply means that the owner's of the fund, grandma and grandpa, have a few extra dollars to live on.
If you think the best Wall Street traders have some special advantage, consider this. A really good trader who can make higher profit percentage will of course make alot more money trading with $100 billion than trading with $10 million. The big $100 billion fund can of course afford to hire the best of best to manage the fund. Therefore, the best traders tend to work for the biggest funds, where they can make the most money. The "biggest funds" include a bunch of Vanguard funds. Who are these insiders who are invested in Vanguard funds? Anyone with $500 savings, Vanguard invests the savings of millions of people, including me. There's the insider secret for you - invest the first 10% of your income with Vanguard and you'll get rich just like like their other millions of customers, slowly.
* Yes, you could choose an fund that trades on milliseconds rather than a Vanguard index fund, but I wouldn't suggest it because the risk-adjusted returns aren't any better. A Vanguard fund has expenses around 0.08%, an HFT fund will have expenses 50 times higher.
When shares take a dive EVERYONE who owns shares suffers plus people who have pension and other policies that invest in the market.
The financial system isn't a them and us - all of us in the western world rely on it and pretending its some boys club where only the rich suffer if the market tanks (they don't - they have a huge porfolio of other investments if they have any sense) is a lie. Its usually the little guy who relies on dividend payments once a quarter who suffers
Yes, you can usually cancel an order that hasn't gone through yet. I did it with a trade last year -- I wanted to sell at a particular price, and cancelled a day later when I changed my mind on the quantity. Of course, if you place a market order, you'll get whatever the market price is, so you won't likely have much time to cancel (during trading hours).
If some lone wolf who got caught did that, what is the guarantee there are not others? What is the guarantee the others too are lone wolves?
It stinks that all the wealth we think we have is in a system that is so vulnerable. Calling a colander a bucket does not make any less leaky!
sed -e 's/Chuck Norris/Rajnikant/g' joke > fact
If every possible action was legal in a game, then there would be no need for any rules. Preventing actions that cause the game to fail is exactly why we have rules. This guy broke a rather clear rule, and now he is getting punished for it.
BTW, his real failure was simply not being creative enough with his dishonesty. Libor, sub-prime, the Goldman Sachs aluminum scam, all demonstrate ways financiers have acted dishonestly without technically breaking a 'rule' and hence get to keep their billions and suffer no punishment. In a perfect world they would all at least lose their money for not playing to the spirit of the rules (like regular workers and small business owners have too), but we don't seem to do that, so they get to keep scamming us and this guy goes to jail.
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.
Yes they cancel them if that happens. They don't spoof them and place them with the intent to cancel them. That is the difference.
If there are 10 high speed traders, they cancel their orders 90% of the time (whenever another trader fills the demand first). So why isn't that illegal?
You just select the order you want to cancel, and hit cancel, as simple as that. Normal individual investors can cancel an order they make, too (and the platform you're using is really bad if it doesn't allow you to cancel orders).
Oolite: Elite-like game. For Mac, Linux and Windows
How does one guy placing orders cause a flash crash?
If he'd been working for Goldman Sachs, he'd have gotten a bonus instead of an indictment.
Scruting the inscrutable for over 50 years.
Do they even need to cancel? Don't they make an attempt to buy at a certain price and if someone else gets it first, they just fail?
No matter where you go, there you are.
Shoot, accidentally modded Redundant instead of Insighful, so I'm posting to undo that.
raymorris' comment is the best in the whole thread.
No, algorithmic traders don't do what he's accused of. The accusation is basically that he routinely placed and then deliberately cancelled big buy or sell orders with no intent of completing them. The reason for doing that would be to bounce precisely those software traders into responses that he could predict and profit from. The facts don't seem to be greatly in dispute, but what's odd here is that, whilst what he's doing is an offence in the US. It's NOT, in and of itself, an offence in the UK. And the treaty under which extradition is being sought is SUPPOSED to only apply to behaviour that is illegal in both jurisdictions. The problem is that a court has ruled that he can be extradited, and it's normally hard to see that renowned bastion of individual freedom, the Honourable Member for Maidenhead (a.k.a. Theresa may, the Home Secretary) actually telling the US it can't have whatever takes its fancy.
Yes, they sometimes cancel transactions for various reasons. What they don't do is submit transactions with no intent of completing them.
I've used multiple retail trading platforms and I've cancelled plenty of orders. It's pretty hard to cancel a "market" order since they execute very quickly. But limit orders often cancel or expire.
I am in the US, Arizona specifically right now, and of course we do use the decimal system. That was a weak attempt at a joke on our states less than enlightened view of education, math in particular. I can't remember which of our Reps issued a statement in regard to the rejecting of the common-core system to the effect that math that used letters was fuzzy and not needed. I figured he'd have the same view of 'numbers' that used a period in them.
errr....umm...*whooosh* *whoosh* Is this thing on ?
Front-running and cancelling huge orders to artificially move prices are two Artificially different things.
Assuming facts not in evidence. Vangard funds charge a lower rate. And, IIRC those much bigger funds have many more people to split up the commissions between.
Your ad here. Ask me how!
> those much bigger funds have many more people to split up the commissions between.
They have a lot more people paying commissions, splitting the costs of a good manager. Figure about 4 million people in one of the Vanguard funds. If each pays $2 management commission per year, that's $8 million dollars for the fund, which will buy a pretty darn good manager or three. On the other hand, contrast small fund with 1,000 investors. If each investor pays a hundred times as much, that's $100K. Which do you think can atttact better management, $100,000 salary and bonus, or $8 million?
You're telling me that algorithms that cancel trades are making offers without the 'intent' of cancelling them? Like.. the fucking computer program has an 'intent?' So, because a person did it, his 'intent' makes him guilty - but an algorithm's 'intent' makes it innocent? You're not making any sense.
--- We need more Ron Paul!