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'Flash Crash' Trader Pleads Guilty, Facing Up To 30 Years In Prison (telegraph.co.uk)
Slashdot reader whoever57 writes;
Navinder Sarao, the British trader who was accused of causing the "flash crash" in 2010 and was extradited to the U.S. this week has pleaded guilty to one count of wire fraud and one count of spoofing. No details of the plea deal have been released, but it's believed that he's agreed to forfeit $13 million. Several years of jail time are also expected for Mr. Sarao.
From the Telegraph: Sarao, a 37-year-old working out of a modest suburban home in Hounslow in west London, allegedly made tens of millions of dollars with a computer program that could automatically manipulate prices... "Navinder Sarao abused sophisticated technology to make a quick profit, and jeopardised the integrity of US financial markets," said Assistant Attorney General Leslie Caldwell.
Sentencing guidelines suggest he'll spend at least six and a half years in prison, though he faced a maximum possible sentence of 30 years and still faces the possibility of $38 million in sanctions.
From the Telegraph: Sarao, a 37-year-old working out of a modest suburban home in Hounslow in west London, allegedly made tens of millions of dollars with a computer program that could automatically manipulate prices... "Navinder Sarao abused sophisticated technology to make a quick profit, and jeopardised the integrity of US financial markets," said Assistant Attorney General Leslie Caldwell.
Sentencing guidelines suggest he'll spend at least six and a half years in prison, though he faced a maximum possible sentence of 30 years and still faces the possibility of $38 million in sanctions.
And they got to keep their bonuses. The system is corrupt to the core.
Exactly. Commercial interests do this all the god damn time and never face criminal prosecution.
He should have been rich to start with. Then he could rig the market legally. They went after him because they hate competition.
If I remember correctly it consisted of software that would place volumes of sell orders well below the current price of the target stock, with no intention of honoring those orders. When other sell legitimate sell orders would start to list below the artificially lowered price they would be bought up and his bogus sell orders would be canceled before they would be filled. When the stock normalized again the stock that was purchased at the artificially lowered price was then unloaded at a profit.
Or something to that general extent
This article explains it reasonably well.... Basically he trolled the HFT algos
http://www.bbc.co.uk/news/business-35863848
Here's the criminal complaint as filed by the US government.
It includes what he did and why it was a criminal act.
https://www.justice.gov/sites/...
What Navinder was trying to do with his bogus orders was to place them OUTSIDE the existing range of buy/sell orders and in large volume to make it appear that there were people actively buying which drives the price up. Ideally ,once he's made his actual sale, he stops placing his bogus orders and the price returns to normal. If he gets too greedy and screws up, he causes a crash and gets caught.
You can also do it with bogus sell orders to drive the prices down.
People have been doing that since forever, and it's been illegal for some time.
It's a variation of what you may have heard called "pump and dump", but instead of spreading rumors, he abused the market's internal machinery to artificially manipulate the prices with a specially designed computer program to prevent his trades from getting filled.
How is what he did different than HFT?
HFT traders do place orders that they intend to cancel, however, if someone successfully intercepted an order placed by a HFT trader, that order would get filled. It appears to me that there was no possibility that Navinder could fill the orders he placed.
The other difference is that the HFT traders are doing price discovery and arbitrage, which is to say they are placing their orders BETWEEN existing active buy and sell orders to get an optimal price for a trade. That is, they are trying to find the best sell and buy order prices so that they can place an optimal buy/sell order.
What HFT traders do tends to bring prices closer together and increase liquidity in normal conditions. These are good for the market (unless they screw up).
BTW, HFT and algorithmic trading are not the same thing, but they can be combined and done by the same people. Some of what HFT gets blamed for is actually the fault of computer-driven algorithmic trading.
Sure, technology made this fraud a lot easier to commit, but technology isn't an intrinsic part of this ploy; he simply used computer algorithms to implement a lightning-fast pump-and-dump scheme.
Basically, what he did was the equivalent of putting out fake advertisements in a newspaper saying that he'd buy a lot of shares of a certain stock at elevated prices. Traders, seeing these ads, get the feeling that this stock is now worth a lot more than what it is trading at, so they start buying this stock at higher and higher prices. This allows him to eventually sell at high prices the shares he had already owned, making a profit. Meanwhile, when these other traders try to answer these ads, they get no answer and are thus left with a ton of overvalued stock.
Pump-and-dump, insider trading, etc. can all screw up the value of stocks, and they need to be prevented for the market to operate "correctly"; that's why there's laws making these schemes illegal. And while laws don't prevent these crimes, they can certainly help in reducing them.