US indicts British 'Flash Crash' trader

Navinder Singh Sarao leaving Westminster Magistrates' Court after losing a bid to delay extradition proceedings in London, UK on Aug 28, 2015.
Navinder Singh Sarao leaving Westminster Magistrates' Court after losing a bid to delay extradition proceedings in London, UK on Aug 28, 2015. PHOTO: BLOOMBERG

CHICAGO (AFP) - A grand jury in Chicago has indicted a British securities trader for manipulating markets and playing a key role in the 2010 "Flash Crash" in US stocks.

The indictment unveiled Thursday (Sept 3) said Navinder Singh Sarao, working out of a modest suburban London home, earned US$40 million (S$56.7 million) via so-called market "spoofing" and "dynamic layering" techniques between 2010 and 2014.

Sarao, 36, allegedly used a tailored computer program that could automatically manipulate prices.

The indictment detailed how the independent day trader built a trading system with the help of programmers specifically designed to help him repeatedly issue and cancel simultaneous sell-and-buy orders in key securities to make the prices go in the direction he wanted.

In an email cited in the indictment, at one point he complained of the slowness of the program, telling the programmer that "I need to know whether you can do what I need, because at the moment I'm getting hit on my spoofs all the time and it's costing me a lot of money."

The indictment said Sarao focused on certain securities like the E-Mini S&P futures contract on the Chicago Mercantile Exchange to move prices, especially in moments of high market volatility.

"Sarao's large, bogus orders had a tendency to effect artificial movements in the E-Mini market price by creating a false appearance of substantial supply and demand," it said.

Sarao's use of the dynamic layering technique "was particularly intense in the hours leading up to the Flash Crash" of May 6, 2010, when the Dow Jones Industrial Average plunged 600 points in a matter of minutes, wiping hundreds of billions of dollars from share values.

Playing E-Minis, he made and then modified bogus orders thousands of times in a short period, ultimately cancelling them without ever executing any. At the same time he raked in US$789,000 in profits on real E-Mini contract trades made that day.

The indictment said Sarao had repeatedly rebuffed probes by regulators, insisting that he was just a fast-fingered normal trader not relying on computer programs for trading. He also brushed off warnings that his activity was illegal and continued to trade.

The indictment set 22 counts of wire fraud, price manipulation and spoofing - making fake orders - against Sarao.

Sarao was arrested in London in April and was granted bail in mid-August as he prepares to fight extradition to the United States.