'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.

Comments

Integrity?

[Anonymous Coward]

Navinder Sarao abused sophisticated technology to make a quick profit, and jeopardised the integrity of US financial markets,

If one guy can cause this, it proves that the US financial markets *intrinsically* don't have much integrity.

Re:Integrity?

[OzPeter]

If one guy can cause this, it proves that the US financial markets *intrinsically* don't have much integrity.

All stock markets are unstable, not just the US. You just need one rumor and *bam* you instantly wipe off $$$. Stock markets are run by people and it all comes back to Agent K's quote:

The person is smart. People are dumb, panicky, dangerous animals, and you know it!

Re:Integrity?

[Antique Geekmeister]

> If one guy can cause this,

There are whole companies dedicated to precisely this. It's called "high-frequency trading". I'm afraid what this gentleman failed to do was to "pay his cut" to the others in the business, and to make it too apparent that the "liquidity" of US markets is designed precisely to allow skimming money from the system through arbitrage.

Lol, translation

[JustAnotherOldGuy]

"Navinder Sarao abused sophisticated technology to make a quick profit, and jeopardised the integrity of US financial markets," said Assistant Attorney General Leslie Caldwell.

TRANSLATION:

"Only we get to fuck with the integrity of US financial markets." - Wall Street Bankers

Re:Lol, translation

[serviscope_minor]

Or even more:

"You only get to cream off those sweet HFT profits if you're one of us"

HFT

[AK Marc]

If he had paid the right people and bought a seat on the exchange, they'd have called it HFT and it wouldn't have been an issue.

But manipulate prices from your garage, and off to prison for you.

Re:HFT

[speedplane]

If he had paid the right people and bought a seat on the exchange, they'd have called it HFT and it wouldn't have been an issue.

His problem is that he didn't make enough money off of his scheme. If he only made 100X that, he'd be called goldman sachs and get a seat on the treasury.

Re:HFT

[humptheElephant]

Yes, put the little guy in prison for a long time, but let the guys off who tanked the economy a few years ago and are going to do it again. Then the government will bail them out again. No prison for the big banksters.

But what is the crime?

[dumky2]

I don't know if this information is public, but what is his supposed crime, specifically?
Did he break the rules of the exchange? Did he trespass, break in, or otherwise tamper with the system?

If you're playing poker, actually manipulating the deck, looking at other people's cards, are both against the rules. Participants agree to those rules when they join the table.
Let's say you're really good at bluffing other people or reading their bluff, you've done nothing wrong. And calling it "manipulation" or "abuse" or "profiting" or "ruining other players" is just a way to obscure that fact.

Re:But what is the crime?

[Anonymous Coward]

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

Re:But what is the crime?

[clovis]

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.

Re:But what is the crime?

[clovis]

Also, one thing that media forgets to mention is that his activity was noticed before the flash crash and the exchanges told him to stop doing that. He continued his bogus trades, and he made the mistake of lying about his activities in emails with the exchanges.
Nothing quite like documenting your crimes in email, is there? For some reason that sounds familiar, but it no longer seems important ...

No banker responsible for 2008 is in jail.

[Anonymous Coward]

And they got to keep their bonuses. The system is corrupt to the core.

So afraid of 1's and 0's

[wjcofkc]

It always boggles my mind when people who abuse computers for financial gain face harsher sentences than so many rapist and murderers (not exclusive). Then I truly consider the reasons why and I choose to remain boggled.

Goldman Sachs does this everyday

[Maxwell]

They are just more subtle about it. And they make more money doing it.And they are too big to fail. And they don't like any lone rangers stepping on their turf.