A UK trader, Navinder Singh Sarao, has been arrested in connection with the “flash crash” of global financial markets which took place in 2010. The 37-year-old, it is alleged, placed false trades worth a total of £134 million from his home in Hounslow in order to manipulate global markets fraudulently.
Sarao is now due to appear at Westminster Magistrates Court to answer to the accusations made against him. He also faces the possibility of extradition to the US, with the country’s Department of Justice (DoJ) pursuing this outcome.
It is claimed that Sarao used commercial trading software to carry out his activities, and “spoofed” the market to make it believe that there were many more traders selling at that time. The result was a sharp downward movement in the market, triggered by the illusion of heavy selling from multiple traders. Sarau, knowing that this movement was going to occur, used the dip to make a sizeable profit. He is claimed to have made a total of £27 million from his manipulation of the market, and it is alleged that through his activities he also contributed to 2010’s “flash crash” of global trading markets.
The flash crash was an event which took place on the afternoon of Thursday 6th May 2010. The market was already in something of a dip thanks to a general election and uncertainty about the Greek debt crisis. These factors had caused the index to fall by 300 points, but when the flash crash hit the market fell by a further 600 points in a matter of minutes.
It was the biggest decline that Wall Street had ever seen take place within a single day, and was both exceptionally fast and exceptionally short-lived. The entire 600 point dip took just five minutes, and the majority of lost ground was regained within just 20 minutes. A number of theories were proposed in the wake of the event to try and explain the sudden, brief dip. These included a single massive transaction, the efforts of a number of traders, and simply an IT error.
Regarding the possibility of extradition, a statement from the United States DoJ said that, through a federal criminal complaint in Illinois, Sarao was charged with a number of offences. Specifically, he was wanted in the US for ten counts of commodities manipulation, ten counts of commodities fraud and one count of wire fraud. He was also wanted for a single count of “spoofing” – the act of issuing a bid or offer which one fully intends to cancel before complete execution.