Whatever Happened to the 'Flash Crash' Trader? (nypost.com) 91
British stock trader Navinder Sarao was accused of helping cause a $1 trillion stock market crash in 2010.
But the rest of his story is now being told in a new book titled Flash Crash: A Trading Savant, a Global Manhunt, and the Most Mysterious Market Crash in History. "I think that he was a gamer and, for him, markets were honestly the ultimate form of game," author Liam Vaughan tells the New York Post: Sarao was more concerned with the rise of high-frequency trading, a method of buying and selling that used powerful computers and algorithms to execute trades in fractions of seconds. The speed allowed (mostly) large, monied firms to beat others to a trade, thereby securing a better price. Sarao bristled at the unfairness. He began engaging in what is known as "spoofing." He hired software developers to write programs that would allow him to place millions of dollars worth of orders, then — after other traders had reacted to his potential trade — abruptly cancel his order. The deception allowed Sarao to nudge the market higher or lower and reap the benefits.
His trading habits eventually drew scrutiny from the Chicago Mercantile Exchange, earning him cautionary letters. Sarao, however, phoned the authorities and told them to "kiss my ass." Then on May 6, 2010, Sarao logged on from his bedroom and began furiously trading, attempting to capitalize on the volatility still roiling the markets after the 2008 crisis. In the final two hours before he logged off at 7:40 p.m. London time, the trader had bought and sold 62,077 e-mini contracts — with a combined value of $3.4 billion. A minute later, markets tumbled with a "velocity and intensity it never had before," Vaughan writes...
Sarao was later arrested and extradited to the United States, only the second person ever charged with spoofing. It's unclear how much his actions contributed to America's so-called "flash crash." The US government contends that he was partially responsible, while some financial experts disagree, seeing him as a Robin Hood whose actions only hurt wealthy companies.
But whatever happened to Sarao? The Post writes that he cooperated with authorities, and the answer ultimately came quietly in January, reports CNBC: Despite facing as much as eight years in prison, Federal Judge Virginia Kendall sentenced Sarao — who suffers from severe Asperger's — to just one year of supervised release. Court documents submitted by Sarao's legal team described him as a "singularly sunny, childlike, guileless, trusting person," who lived off social security payments and played hour after hour of video games in his childhood bedroom.
Sarao, who spent four months in the U.K.'s Wandsworth Prison before his extradition to the United States, has forfeited about $7.6 million in gains made from trading. U.S. authorities claimed Sarao made more than $70 million between 2009 and 2014 from his bedroom — much of it legal. However, it has been reported that he has lost almost all of his money after investing in fraudulent scams.
"I think justice was done," the new book's author tells the Post, "because the message was out there that someone shouldn't be thinking about doing what Nav was doing."
But the rest of his story is now being told in a new book titled Flash Crash: A Trading Savant, a Global Manhunt, and the Most Mysterious Market Crash in History. "I think that he was a gamer and, for him, markets were honestly the ultimate form of game," author Liam Vaughan tells the New York Post: Sarao was more concerned with the rise of high-frequency trading, a method of buying and selling that used powerful computers and algorithms to execute trades in fractions of seconds. The speed allowed (mostly) large, monied firms to beat others to a trade, thereby securing a better price. Sarao bristled at the unfairness. He began engaging in what is known as "spoofing." He hired software developers to write programs that would allow him to place millions of dollars worth of orders, then — after other traders had reacted to his potential trade — abruptly cancel his order. The deception allowed Sarao to nudge the market higher or lower and reap the benefits.
His trading habits eventually drew scrutiny from the Chicago Mercantile Exchange, earning him cautionary letters. Sarao, however, phoned the authorities and told them to "kiss my ass." Then on May 6, 2010, Sarao logged on from his bedroom and began furiously trading, attempting to capitalize on the volatility still roiling the markets after the 2008 crisis. In the final two hours before he logged off at 7:40 p.m. London time, the trader had bought and sold 62,077 e-mini contracts — with a combined value of $3.4 billion. A minute later, markets tumbled with a "velocity and intensity it never had before," Vaughan writes...
Sarao was later arrested and extradited to the United States, only the second person ever charged with spoofing. It's unclear how much his actions contributed to America's so-called "flash crash." The US government contends that he was partially responsible, while some financial experts disagree, seeing him as a Robin Hood whose actions only hurt wealthy companies.
But whatever happened to Sarao? The Post writes that he cooperated with authorities, and the answer ultimately came quietly in January, reports CNBC: Despite facing as much as eight years in prison, Federal Judge Virginia Kendall sentenced Sarao — who suffers from severe Asperger's — to just one year of supervised release. Court documents submitted by Sarao's legal team described him as a "singularly sunny, childlike, guileless, trusting person," who lived off social security payments and played hour after hour of video games in his childhood bedroom.
Sarao, who spent four months in the U.K.'s Wandsworth Prison before his extradition to the United States, has forfeited about $7.6 million in gains made from trading. U.S. authorities claimed Sarao made more than $70 million between 2009 and 2014 from his bedroom — much of it legal. However, it has been reported that he has lost almost all of his money after investing in fraudulent scams.
"I think justice was done," the new book's author tells the Post, "because the message was out there that someone shouldn't be thinking about doing what Nav was doing."
guileless... "kiss my ass"... (Score:2, Insightful)
Sarao's legal team described him as a "singularly sunny, childlike, guileless, trusting person,"
Interesting. Defraud people out of tens of millions, tell authorities to go fuck themselves, and then get no prison time. I think I'm in the wrong line of work.
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George Soros made his fortune by crashing and shorted the British Pound but every one ignore this.
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DogDude called "Karen" for some reason, have no sense. George Soros made his fortune by crashing and shorted the British Pound but every one ignore this.
Nobody ignores this, its just that those two things are different. What Soros did was caused by British politicians pegging their exchanges rates instead of letting them float in the market. Soros exploited the difference between the *free market* exchange rate and the pegged one. This crash was going to happen one way or another. Soros just made it happen sooner and made sure that he benefited the most he could from that event. In this way Soros was the personification of the moral hazard created by B
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yes you are, posting here doesn't pay well
No true. I am a real true American and make many American dollars posting on this very nice website.
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I made a few of those USD myself by not paying attention to what people were posting here circa 2011
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Traders are only limited by the rules of the exchange. As long as they follow the rules all is ok. It may not be moral, but it may not be illegal.
For example an illegal gambling operation may buy product from Walmart, give it out as prizes, and the winner then returns it for cash. Immoral, taking advantage, but not illegal.
This was
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I am inclined to agree. If your predictive computer lives and dies based on what the other computers are doing, I don't see why you deserve one single ounce of sympathy when your computer jumps off a bridge.
Now if the exploit involved planting false news articles about a company, that I can feel outrage over.
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I am ignorant about trading; I just buy based on the news. I'm so foolish I like dividend bearing stocks, which I'm told makes me very stupid. Anyway, I'll present the two main possibilities I can see.
One is that buying a bunch of shares and then cancelling the order directly changes the scarcity/price of the stock before anyone, man or machine, can react. If this is the truth, I accept your point.
The other possibility is that people and computers are trading based on what they think others are trading. If
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The other possibility is that people and computers are trading based on what they think others are trading. If this is the case, I suggest they peruse an old story called "Chicken Little".
of course they are. A large part of market pricing is emotion and sentiment, understanding the direction of that is how many traders make decisions. Nothing wrong with buying dividend paying stocks either, anyone telling you that is stupid is themselves an idiot, it is a perfectly viable strategy.
Re: guileless... "kiss my ass"... (Score:1)
There is absolutely nothing wrong with lower risk dividend equities. Everyone has different and unique financial goals and situation. If dividends meets your goals then you are a winner and very smart. Whoever told you there is only one right way to invest is an idiot.
I do not buy dividend stocks. They do not meet my goals. My goals are met through other investments. I am doing well in my way. You are doing well in yours. Both winning.
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One is that buying a bunch of shares and then cancelling the order directly changes the scarcity/price of the stock before anyone, man or machine, can react. If this is the truth, I accept your point.
Not quite, but I think it takes some explanation as to what he was doing, and thus why I don't believe that screwing HFT traders is all that bad.
Okay, on the stock market today, trades happen very quickly, but not instantly. A lot of it depends on how fast your computers are.
So basically, what happens is that HFT traders have set up systems so fast that they can see that a buy order is coming in, determine that said buy order is for more than the lowest priced stock available at that moment, then successfu
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His "crime" was beating the wealthy at their own game. Building a bot that was better at market manipulation than the big boys.
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You think the big firms don't do the same? LOL.
I remember when Knight Capital went under. A lot of the trades that Knight Capital made on that fateful day were reversed. If you are an small trader and you make a mistake, do you think that you can get that trade reversed?
The markets are
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Big firms change their intentions often, and often have to prove to regulators they had good reasons to cancel, and that's different from spoofing where orders are placed with no intention to execute.
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Sarao's biggest crime was that he slipped past the sign with a picture of stacked gold bars that read "you must be at least this rich to cross this line".
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The reason that this seems like a relatively reasonable sentence for this offense is that it caused relative little harm compared to other offenses. For instance, the traders that actually caused the most harm, those that programed the computers to trade automatically with no safeguards or moral limits, did the actual harm. The
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That's not what he did (Score:2)
> Again, all this guy did was to run a very fast flash trade operation, perfectly legal, and harmless
That's not at all what he did. What he did, repeatedly, was fraudulently place orders/offers to buy billions of dollars of stock at a particular price with no intention of actually doing so. Obviously when Dell is trading at $100, if someone posts an offer to buy a million shares of Dell at $105, that pushed thr price up.
While the price was up due to his fraudulent order to buy, he'd instead SELL the sto
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That's not at all what he did. What he did, repeatedly, was fraudulently place orders/offers to buy billions of dollars of stock at a particular price with no intention of actually doing so. Obviously when Dell is trading at $100, if someone posts an offer to buy a million shares of Dell at $105, that pushed thr price up.
What he was doing was specifically trying to manipulate the quote stuffing of the high frequency traders. That's also a form of spoofing, i.e. placing orders you know you will never fulfil,
Re:guileless... "kiss my ass"... (Score:5, Informative)
HFT traders are sophisticated lobbyists who through volume of trade and buying services have ensured they are the darling of exchanges and have revolving door relations with the SEC.
If you try to turn their algorithms against them they turn all that lobbying power against you.
Fraud is not "following the rules" (Score:2)
> Not sure where the crime is. People are greedy. ...
> Traders are only limited by the rules of the exchange. As long as they follow the rules all is ok.
Routinely placing millions, even billions of dollars of fraudulent, phony orders in order to defraud people is not "following the rules". That's what the crime is.
What he did, repeatedly, was fraudulently place orders/offers to buy billions of dollars of stock at a particular price with no intention of actually doing so. Obviously when Dell is tradi
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I don't see how he could sell them faster than he could buy them.
Put in fake big buy order
Sell a bunch of the same thing
Have those sell contracts execute
Cancel big buy order before it executes
Profit
Did the size of the buy order cause a delay because it commanded review?
Even so, I would think that if you tried to buy a million shares at that much of a premium that there would be hundreds of computerized automatic trades just waiting for the number to cross a threshold that would be executed immediately.
HFT w
One way Fraud (Score:2)
...placing phony orders you have no intention of completing...
Technically they were real orders that he hoped to cancel before they completed. It's certainly dishonest and misleading but not any more so than high frequency trading which, bizarrely, seems to be considered legal.
Fraud seems to be one-way: it's fraud if you find a clever, but dishonest way to make money from large investment companies and banks. However, it's business as usual if they find a clever, but dishonest, way to make money from you.
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Technically they were real orders that he hoped to cancel before they completed. It's certainly dishonest and misleading but not any more so than high frequency trading which, bizarrely, seems to be considered legal.
I'm not a fan of HFT, I think it should be banned in fact, but in what way is placing orders which you have no intention of completing not more dishonest or misleading than completing trades which manipulate the market? It seems like fraud to me, as opposed to "simple" exploitation of the system-as-designed.
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He did get jail time in the UK, and extradited to the US, and a long trial, and lost all the money.
Why is this even a thing? (Score:4, Insightful)
I'd think pending transactions should go into a database inaccessible to the public and traders, and once a day they should get "played" in chronological order until the new daily "state" is determined and made public.
In my humble opinion, the stock market should be a mechanism by which investments can be made that benefit the investor over time if their chosen stocks' companies perform well. In return, the companies get access to liquidity. Both ends of that agreement would benefit from stability. I'd think the micro-traders are an abuse of the whole purpose of the system, screwing everyone else. But I'd be interested if someone can explain how wrong-headed I am.
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All we really need is something like a 10 cent tax per trade.
Most trades already occur in offshore Dark Pools [wikipedia.org] that are outside of government control and scrutiny.
Since SOX was enacted, there has also been a transition to private equity, depriving small investors of investment opportunities.
A tax on public market transactions would accelerate both of these trends.
The government's "iron fist" doesn't seem to be working, and it is unlikely that squeezing harder is the solution.
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Most trades already occur in offshore Dark Pools [wikipedia.org] that are outside of government control and scrutiny.
Actually, if you read that Wikipedia article, this is one thing that dark pools do: obfuscate trading events in the short term so HFTs can't get in front of institutional investors. And it turns out that most decent brokerages operate in both worlds. They throw enough chum in the water, so to speak, to keep the high frequency traders busy producing liquidity (and brokerage fees). And they move securities back and forth between dark markets and the on-line public markets that the HFT people use through marke [wikipedia.org]
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Re:Why is this even a thing? (Score:4, Insightful)
So that richer trading companies can get away with exactly the crap that Sarao did.
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Otherwise how would traders be able to skim profit from investors? Exchanges evolved to serve the people who pay them most money ... and that's always been traders. Investors have lacked the unity to demand change and so it gets worse and worse.
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I'm legitimately asking... why does the stock market need a granularity more than say... once a day?
Because stuff happens during the day that changes the perceived value.
I'd think pending transactions should go into a database inaccessible to the public and traders, and once a day they should get "played" in chronological order until the new daily "state" is determined and made public.
Trades placed during the last second would have a huge advantage of trades placed earlier in the day, since they could incorporate more information. Trades placed in the last millisecond would have an even bigger advantage. Only a fool would place a trade outside of the smallest possible time window before trading is halted.
Transaction risk would increase, raising transaction fees.
Big traders would shift to private exchanges, which alre
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Explicit fees are lower. Front-running HFT are skimming every transaction.
The total fees would be even lower without HFT. Why would I care if it was more expensive in the past?
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Remember that the stock market is just that, a market. The actual investments took place when the stock was first sold to the original investor. Anytime the stock changes hands after that is not really a further investment in that company, only the previous stock holder gets your money, and you get a ticket to possible dividends, votes within that company, possible benefits, etc. In that way stock trading is sort of like scalping tickets
As for how long between buying and selling th
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Commitment is hard.
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Re:Why is this even a thing? (Score:5, Interesting)
Savings accounts actually lose money now because interest rates are lower than the inflation rate. This is the only reason everyone has their savings somehow in the market - they have no choice or their savings get smaller. Pensions, IRAs, and almost everything was forced to be held somewhere within the market that we are 'free' not to participate. Is it free will when the choices are participate or slowly go broke?
When the banks actually used to work as described brilliantly in the movie 'It's a Wonderful Life', savings accounts actually worked to save money. Now you basically pay the banks to hold your money while they use it, people didn't go to the market by choice, big money moved us there.
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If something bad happens to a company, when the news goes public, you're going to get a bunch of sell orders for that stock. But with everyone pi
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You're not the first to have thought of this. I can't find it at the moment, but there has been a serious proposal to have the market be open for only 15 minutes a day.
He's working a temp job (Score:4, Funny)
Whatever Happened to the 'Flash Crash' Trader?
He's working on a project [adobe.com] at Adobe that's due to wrap up on Dec 31, 2020 ...
Sarao isn't the problem (Score:2)
Reminds me of some 10 years ago when a large investment company made a tunnel from Chicago to New York and laid fiber, thus saving a couple ms over satellite or terrestrial routes. When this kind of BS can be a thing the market is worse than a casino.
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Anyone that doesn't think HFT's affect the average Joe is delusional, at best. If nothing else Joe sees the stock market as a rigged casino and stay way the hell away.
HF Trading skims the pennies (Score:2)
It does not by itself make a huge change.
Most HF traders need to close their books overnight -- and not hold a position. So no long term effect.
HF traders compete against each other. They are constantly refining their algorithms based on how the market reacts, second by second. And as other traders cause the market to react, they need to constantly adjust their algorithms.
Incidentally, I have a friend that is a HF trader from New York who was told to work from home, so he thought his home here in Austral
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Pension funds are not average traders.
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Fiber optic cables still have to follow the curve of the earth.
But a beam of neutrinos can go straight through.
There are rumors that some traders are using neutrino detectors to send "buy" and "sell" instructions directly through the core of the earth, cutting many milliseconds off the transmission time.
Neutrinos give HF traders a millisecond edge [forbes.com].
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High frequency traders host their servers in the same building as the stock exchange itself for tht reason.
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High frequency traders host their servers in the same building as the stock exchange itself for tht reason.
That doesn't help you if the trade is in NY and the information is in Tokyo.
Let's say there is a big trade in Tokyo for a stock listed on both the NYSE and TSE and the price in Toyko rises. You can make a profit in NY if you can get the information there first and arbitrage the price difference. Milliseconds matter.
This technique is not new. Nathan Rothschild made a fortune by receiving knowledge of the British victory at Waterloo hours before the official news reached London.
Re: Sarao isn't the problem (Score:1)
Ms? Tunnel form Chicago? Uhm... they have machines with direct wire to plug connections in the same data center for many years now. There's no big boys playing with cross country tunnels, fiber, or anything like that.
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4 years ago they replaced the fiber with microwave relays because the speed of light is so much faster in open air than it is in fiber.
https://arstechnica.com/inform... [arstechnica.com]
Not that it's perfect lol
https://news.slashdot.org/stor... [slashdot.org]
Aww poor guys...
This isn't 1980. (Score:2)
"Justice Was done"? (Score:1)
He cause a trillion dollar loss.
He made $70.6 million.
He forfeited $7 million.
Do the math.
How was "justice" done?
E
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only 8 years? (Score:3)
If the judge was to get 8 years, how many was Sarao to get?
Scapegoat (Score:2)
SEC definition of manipulation: https://www.sec.gov/fast-answe... [sec.gov]
The big banks are the foremost manipulators and yet nothing is done about it because they are too powerful.
The flash crash occurred (caused chaos in my job that day) and they needed a scapegoat. Someone not connected to a big bank. This British guy was perfect for the position.
Those with money frowned on his shenangians. (Score:2)
He exposed an unbalanced and rigged trading system. Then he used his knowledge to cost the wrong people money. For that he was to be punished.
The financial sector has spent a lot of money re-branding themselves as a place for retirement savings as opposed to their true lot as the world's biggest casinos.