Flash crash case arouses skepticism

From Saudi Gazette –

“The notion that one man trading from his parents' house in a working class London suburb had a material role in the 2010 Wall Street flash crash has aroused increasing skepticism from investors and traders since charges were brought on Tuesday.

The US has asked UK authorities to hand over Navinder Singh Sarao, 36, after his arrest this week on charges that he manipulated markets over several years in a fraudulent scheme that helped cause the stock market rout.

The US Department of Justice alleges that Sarao used souped-up, off-the-shelf software to trick other market participants into thinking massive sell orders were about to hit, causing the so-called E-mini S&P futures prices to drop so he could buy at cheaper levels. In doing so, he made $40 million in profits, US authorities allege.

But traders doubt that Sarao could have had the upper hand in a market dominated by Wall Street firms with powerful computer trading programs and huge technology budgets. The charges against Sarao, operating far from the center of US markets and engaging in activity some believe occurs every day among larger firms, show that regulators may not shy away from publicity, even if their case may be legally solid.”

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Two Futures Traders Banned From CME Following 'Flash Crash' Trader Navinder Sarao's Arrest

From International Business Times –

“Hard on the heels of charges against a trader who authorities say helped spark 2010’s "flash crash," the Chicago Mercantile Exchange disciplined two gold and silver futures traders for allegedly engaging in the same kind of market manipulation.

The CME on Thursday announced a 60-day ban for traders Heet Khara and Nasim Salim for allegedly colluding to use the disruptive strategy known as “layering.” The traders “repeatedly entered orders or layered multiple orders for gold and silver futures contracts without the intent to trade,” the CME said in a pair of notices.”

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British trader arrested and charged with helping cause 2010 'Flash Crash'

A United Kingdom trader has been arrested and will remain in custody, pending extradition to the U.S. to face criminal and civil charges that include wire fraud, commodities fraud, attempted manipulation and spoofing.

From USA Today –

“Alleged market manipulation by a London-based high-frequency trader helped cause the 2010 "Flash Crash" that roiled financial exchanges and severely tested investors' confidence, U.S. authorities said Tuesday.

Navinder Singh Sarao, 37, and his company, Nav Sarao Futures Limited PLC, used computer software to manipulate Standard & Poor's futures contracts through a practice known as "spoofing," according to the Commodity Futures Trading Commission and the Department of Justice.”

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Former Goldman programmer faces second trial over HFT code theft

From Finextra –
“Sergey Aleynikov, the former Goldman Sachs programmer who had a conviction for stealing the bank's propriety HFT code overturned is back on trial on charges related to the same incident.

Aleynikov was found guilty by a Manhattan jury in December 2010 of federal criminal charges relating to the theft of trade secrets and interstate transportation of stolen property. However, after serving little more than a year of his 97 month sentence, a US Appeals Court overturned the conviction.

Yet a State judge quickly ruled that double jeopardy does not apply and that New York prosecutors could make their own case against the Russian-born programmer because the charges are different. Aleynikov now faces a second prison term of between 18 months and four years, if convicted.”

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High-frequency trading might reduce liquidity, not boost it as its defenders claim

From The Economist
“In the wake of the publication earlier this year of “Flash Boys”, a book that criticised high-frequency trading (HFT)—the use of algorithms to buy and sell shares and other financial assets at vanishingly short intervals—regulators and investors have been debating whether and how to curb it. One mooted response is to introduce deliberate delays before trades are executed. Another is to shuffle the order in which they are processed. HFT firms maintain that no change is needed, on the grounds that they help to lubricate markets by increasing volumes and ironing out inconsistencies in prices. But a recent paper argues that they do indeed create inefficiencies and suggests a more fundamental reform to how markets operate in order to stave them off.

“Flash Boys” took HFT firms to task for a strategy called front-running. When an investor is buying or selling a big block of shares, it is common to split the order across multiple exchanges (say, the NASDAQ and the NYSE) in search of a better overall price. HFT algorithms can observe the order on one exchange and “front-run” the investor to the next one, buying up the available stock there and selling it to the sluggish investor at a higher price.”

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