British man alleged to have broken Wall Street

 wall streetA  futures trader was arrested in the United Kingdom today on US wire fraud and commodities fraud and manipulation charges in connection with his alleged role in the May 2010 “Flash Crash”.

The US government claims that Navinder Singh Sarao, 36, of Hounslow caused the Dow Jones Industrial Average to plunge 600 points in five minutes using weaknesses in the computerised share buying process.

Needless to say the US is requesting his extradition after he was charged in a federal criminal complaint in the Northern District of Illinois on Feb. 11, 2015, with one count of wire fraud, 10 counts of commodities fraud, 10 counts of commodities manipulation, and one count of “spoofing,” a practice of bidding or offering with the intent to cancel the bid or offer before execution.

Sarao allegedly used an automated trading program to manipulate the market for E-Mini S&P 500 futures contracts on the Chicago Mercantile Exchange.

Sarao’s alleged manipulation earned him significant profits and contributed to a major drop in the US stock market on May 6, 2010, that came to be known as the “Flash Crash”.

He is said to have used a “dynamic layering” scheme and placed multiple, simultaneous, large-volume sell orders at different price points. This created the appearance of substantial supply in the market.

Then he modified these orders frequently so that they remained close to the market price, and typically cancelled the orders without executing them.

This caused prices to fall and Sarao allegedly sold futures contracts only to buy them back at a lower price.

When the market moved back upward as the market activity ceased, Sarao allegedly bought contracts only to sell them at a higher price.