back to article London's $40m 'flash crash' trader is to face extradition to the US

Navinder Singh Sarao, the man accused of causing the stock market “flash crash” in 2010 has lost his court battle against extradition to the US. In 2010 Sarao, 36, was alleged to have knocked $40m (£28m) off the financial markets. He traded on the Chicago Mercantile Exchange from his parents' home near Heathrow. He is …

  1. Anonymous Coward
    Anonymous Coward

    What he did hedge funds do on a daily basis

    Quant trading funds do this on a daily basis.

    His error was doing it from his basement, not from an office in the City behind a proper front.

    1. Anonymous Coward
      Anonymous Coward

      Re: What he did hedge funds do on a daily basis

      Yes, there needs to be a fee charged for order cancellation that is high enough that doing this is no longer profitable.

    2. organiser

      Re: What he did hedge funds do on a daily basis

      His error was not paying the exchange a large fee for preferential services. That's what the HFT guys and the hedge funds do. It is a payment for "protection."

  2. Anonymous Coward
    Anonymous Coward

    Only the big banks are allowed to do this.

    You may be waiting for Ms 'UK.STASI' May's decision, but we already know what it will be.

  3. Anonymous Coward
    Anonymous Coward

    Greedy

    I mean, how clever is he - yet went for millions that lit up light bulbs rather just a few 100K.

    1. Tom 7

      Re: Greedy

      100k wouldnt shift the market enough to ensure it moves the way you want.

  4. Terry Cloth
    Stop

    Fix

    As has been pointed out elsewhere, stock markets are undamped systems, with all the dangers that follow from that. They need damping, in the form of a delay before execution of a trade. I think a few minutes would work (at least five, better fifteen), so that computers will have a harder time gaming the system.

    I can hear the shouts now---``You're interfering with the free market!'' Not really; it's just a mechanism to ameliorate the effects of flash crowds (and cut down on the profits of weasels). Remember, the stock markets are (supposedly) dealing with long-term securities, and instant trading destabilizes it. (Maybe a day's delay?) You can still make your money, just wait a bit.

    Oh, yeah. And change the (U.S.) law so that to get long-term capital-gains treatment, you hafta hold the stock for five (5) years, like it used to be. That might counter the ``gotta make the next quarter's numbers'' mindset. Or so I can dream.

    1. Pseu Donyme

      Re: Fix

      Indeed. As far as I can see a stock market would work perfectly well if the highest bids were matched with the lowest asks (where bid >= ask, of course) at the end of the day and where the price paid would be the mean of the two ((bid+ask)/2) for each match: after all, stock markets are closed overnight and during weekends so the need to have a current price by the nanosecond simply isn't there. (The bids and asks should also either be final (no canceling) and/or only published at the end of the day after the trades are final to further avoid manipulation.)

      (re: free market, a bit of an oxymoron, really, as anything free in the sense of lacking enforced rules ceases to be a market in a practically useful sense. A fair market, in the sense of a level playing field, would seem like a more pragmatic goal.)

    2. Anonymous Coward
      Anonymous Coward

      Re: Fix

      The stuff like high frequency trading, arbitrage and all the other weird stuff that goes on in the stock market does make me uneasy. High street banking serves a purpose to society in facilitating the movement of wealth around, storing deposits and lending out to those who need a loan, but the money market trading doesn't seem to provide any real tangible benefits to society, just profits for the few in London, New York or wherever.

      Having someone able to bugger about with the stock market like this is a flaw in the system. Whether him exploiting it or not is a crime depends on your interpretation of the laws.

      Posting anonymously as I work for a bank and these are my personal opinions.

    3. Schultz

      Re: Fix

      Introducing a delay in trades doesn't necessarily remove the ability to play the system - you just have to be that microsecond faster than your prey, some 5 seconds in the future.

      Better to collect all orders and execute them in discrete bunches -- let's say every 1, 5, or 10 seconds. Running a faster computer or a shorter cable won't give you any advantage then. You'd need to hack the data lines from the competition to game the system and that surely must be illegal even if you happen to be a big bank.

    4. Voland's right hand Silver badge

      Re: Fix

      They are deliberately undamped.

      The money for nothing extracted from the instabilities by the few big players at the expense of all small investors is so big that it will take a WW3 like event or a complete system collapse (as described by Arhtur Clarke in Rama 2 and 3) for the regulators to try to stabilize it. Until then they listen to "stakeholders" and all of them like it unstable.

    5. organiser

      Re: Fix

      Good luck finding a five year futures contract that is not too expensive and risky.

  5. Anonymous Coward
    Anonymous Coward

    An investment firm told me about "value investing"

    ie the practice of having domain experts look at the fundamentals of companies, patiently sifting through their reports to find those plucky underdogs unfairly priced by the market, then buying and holding those stocks long term.

    It seemed such a bucolic dream, capitalism from a moral fable book. So different to the business of finding a bigger fool ASAP to offload the share to, where the fool is now a robot and the "as soon" is governed by the purity of the fibre optic. If I was loaded I might even invest a little with them, but expecting only a moral profit, the feeling of having paid tribute to a lost dream

  6. Mephistro
    Flame

    Legal harassment FTW!

    Three questions:

    How can he be extradited for doing something perfectly legal in both countries? What kind of judge or jury would condemn him, knowing that many companies have been doing exactly the same (and worse) for decades? Would they also condemn the sellers of this kind of software and services?

    1. Anonymous Coward
      Anonymous Coward

      Re: Legal harassment FTW!

      What kind of judge or jury would condemn him, knowing that many companies have been doing exactly the same (and worse) for decades?

      His error was not doing this from a plush office in Wall Street. He will be convicted of something, but I can already translate the real argument for you: Wall Street really dislikes competition, especially competent competition.

      If you want some entertainment that holds some rather painful truths about Wall Street, watch The Big Short. Worth it.

  7. EveryTime

    The core of his illegal actions was that he offered to sell things that he did not have, and made offers to buy that he had no intention or ability to complete.

    You can argue that others were doing the same thing on the selling side, notably in the form of naked shorts, but that doesn't excuse his actions. And on the buying side presumably the others were less aggressive and had the ability to follow through purchasing based on their bids. (Intent might be difficult to judge, but the lack of ability to purchase isn't.)

    I don't see any of this as a 'free market' issue. Financial markets are highly regulated, partially as a substitute for transaction parties needing to be well informed about each other. Otherwise "100 shares of INTL held by X" would necessarily be different than "100 shares of INTL held by Y" because of the difference risk.

    1. Anonymous Coward
      Anonymous Coward

      Re: Illegal actions

      And that "financial markets are highly regulated" argument would hold water IF there wasn't evidence of (a significant number of) other players in the market doing the same thing on a daily basis (i.e. http://money.cnn.com/2013/03/20/investing/mini-flash-crash/) and not being pursued.

      The problem here is:

      a) on the basis of evidence of a crime, he will be deported to the US.

      b) once in the US, he will eventually be charged with something to justify the deportation and a plea bargain worked out to avoid a lengthy jail sentence after losing 2-3 years of his life on this process

      c) Yeah! Justice!

  8. Nick Kew

    If there's a crime exposed by this, it's the bots that saw his orders and front-ran them. And the system that allows orders to be seen by third parties in time for that to happen! The fact he could make millions tricking them just goes to show how much those parasites bleed out of honest investors, such as our pension funds.

    But the beneficiaries of those keep the judiciary in their pockets, both sides of the atlantic. This poor bugger failed to grease the right palms.

    Once upon a time, I heard a story of someone who had baited a 419 scammer. He could help a fellow-member of his church and suggested the scammer join and he'd help. So he got a joining fee out of the 419-er. Seems to me what this guy did is morally much the same as that!

  9. Anonymous Coward
    Anonymous Coward

    Puts his Assangeness into perspective

    Here we see the reality of the US-UK extradition arrangements. The US just includes a name on their regular 'send us these victims' list and the UK ships the meatsack over, no questions asked.

    So much for 'staying in the UK to be safe from arbitrary extradition to the US', eh?

    1. Anonymous Coward
      Anonymous Coward

      Re: Puts his Assangeness into perspective

      The extradition is supposed to be for something which is a crime in both the UK and the US. In this case, it is only a crime in the US.

  10. Kubla Cant

    Flash Boys

    The relevant book here is not The Big Short, but another book by Michael Lewis. Flash Boys describes the extraordinary antics of high-frequency traders. It opens with a description of the speculative construction of a fibre link from New York to the Chicago mercantile Exchange. Speed is so important that they can't even afford to route the fibre round a car park when the owner refuses wayleave.

    The story revolves around a trader who finds that his trades are effectively sabotaged by HFT algorithms that manipulate the market while his trades are in flight. He sets up an alternative exchange that incorporates delays so that HFT is denied its advantage.

    Read it.

  11. Anonymous Coward
    Anonymous Coward

    Before mouthing off read the judgement

    https://www.judiciary.gov.uk/wp-content/uploads/2016/03/sarao_extradition_judgment.pdf

    Judge Purdy considers at length whether his conduct could reasonably be prosecuted in the UK and concludes "if proven here would be a S.2 Fraud Act 2005 offence". So that's not shipping off without question, that's due process working out as the law dictates.

    1. PaulAb

      Re: Before mouthing off read the judgement

      I'm not certain that the comment is an attack on the judgement, but rather the pathetic lengths the UK will go to to appease the 'special relationship', which is very special - all one way. The judge could only find as the law dictates, e.g. a law created by simpering morons in this country who are generally very agreeable to our 'special' friends.

      With luck the removal to the US will be turned down.

  12. PaulAb

    The Axe may fall but....

    If he must get extradited, he at least sounds bright enough to get himself booked first class on the trip over. He would be able to rub shoulders with all those upright, noble, bankers and find out where he went wrong, wouldn't he RBS, wouldn't he Barclays, wouldn't he Sax Goldman. If he had worked for any of the aforementioned he most likely would have received a substantial bonus and an invitation to the Whitehouse to listen to Maria Carey sing.........Yea, I'd take the sentence too!

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