Flash crash trader Navinder Singh Sarao is a 'hero', says fund manager Navinder Singh Sarao's actions have been described as heroic by a fund manager, as US authorities pursue him for allegedly causing a market crash Flash crash trader Navinder Singh Sarao who may have caused global stock markets to crash in May 2010 Photo: Telegraph Media Group By Peter Spence 4:54PM BST 23 Apr 2015 Navinder Singh Sarao has been hailed a “hero” who helps make financial markets “safe for ordinary investors” by a respected fund manager. Mr Sarao is accused of making bogus offers to trade on one of the world's biggest financial markets, helping to bring about a market crash in 2010 from a house in Hounslow. He denies any wrongdoing. John Hempton, manager of Bronte Capital Management, said the trading methods allegedly used by Mr Sarao had actually helped to protect real investors and their clients. In a blog post, Mr Hempton said that it was “ludicrous” to say Mr Sarao could have brought about the crash through the trading of “a few thousand [futures] contracts”. His comments echo those of former Barings trader Nick Leeson, who said that Mr Sarao may just be a scapegoat. The US Commodity Futures Trading Commission (CFTC) does not directly blame Mr Sarao for the 2010 Flash Crash, but said that his “manipulative activities … contributed to market conditions that led to the flash crash”. The US watchdog listed “at least” 12 days on which Mr Sarao was using his “automated system”. However, there’s only been one flash crash. Mr Hempton said: “I probably will contribute to his [Mr Sarao’s] defence.” The Australian fund manager said that the so-called “spoofing” techniques employed by Mr Sarao helped to fend off high-frequency traders, which he claimed rip off “real investors”. Many investors believe that spoofing, the practice of creating fake demand or supply in the market to influence prices, could be widespread. But Mr Hempton argued that the losers from this are “front running” high-frequency traders who attempt to capitalise from ordinary investors. High-frequency traders try to place their orders before conventional investors when they see their orders to make a profit. Mr Hempton said: “[Regulators] have arrested a kid who is spoofing the market with a few thousand e-mini contracts and hence taken money from the front-running computers whose real goal is to rip you off.” “They have made the world safe for the conventional high-frequency traders at a real cost to the investing public,” he continued. Mr Hempton’s dismissal of the CFTC’s explanation of Mr Sarao’s role in the flash crash echoes the Chicago Mercantile Exchange, which said on Wednesday that it had concluded that “the Flash Crash was not caused by the futures market”. According to the CFTC, the 2010 flash crash happened two minutes after Mr Sarao’s algorithm was turned off, when prices should have been rebounding.
Thursday, April 23, 2015 Navinder Singh Sarao: Our spoofing hero[/paste:font] This is a comment on the story rampant in the press about a British Man causing the US "flash crash". If you are not familiar this is as good a background as needed. It took me a while to get my head around just how ludicrous the assertion that a kid (Navinder Singh Sarao) trading a few thousand e-mini contracts caused the "flash crash" was. He did this every day for a few hundred days - and almost every day there was no flash crash. Then there was a flash crash - so ergo - a kid in his basement caused it. He did this by "spoofing" which is an illegal form of market manipulation. If you need a summary beyond what I give here Matt Levine provides a fairly good summary. Spoofing Spoofing - so what is it? Its placing a bunch of (say) sell orders a little above market and a smaller buy order a little below market. What then happens is that "front running computers" see the multitude of sell orders and assume they are real. They then decide to sell some to get in front of some real selling. The real buy order gets executed. Now our spoofer is long. They will want to sell at some stage - so they reverse the process. They place a lot of buy orders a little below market and a smaller sell order they want executed - and the front running computer crosses the spread. The spoofer thus earns the spread, they do this repeatedly and the loser is front running computers. All these trades are placed for mere milliseconds so spoofing is one computer ripping another computer off. Real people don't get fooled by spoofers because the spoofed trades are around for milliseconds. Making spoofing illegal thus increases the profits of front running computers - meaning more front running computers. Now alas when I buy a real order in market I have to pay my due to the front running computers - which comes at a real cost to me - a real investor - and to my clients. This is a real cost to real investment in the capital market. I would prefer the front running computers go away - and the best way for that to happen is to allow spoofing. Spoofing makes the world unsafe for front-running high frequency traders. -- So what have the regulators done. They have arrested a kid who is spoofing the market with a few thousand e-mini contracts and hence taken money from the front-running computers whose real goal is to rip you (real investors) off. They have made the world safe for the conventional high-frequency traders at a real cost to the investing public. They were helped out by an industry whistle-blower. In other words they did it with the help of an industry participant: someone who runs the front-running computers designed to rip-you off. The Department of Justice has been played into bringing the full force of the US legal system onto an irrelevant trader - just to make the world safer for the real rip-off merchants. And their case looks plain silly. As for the kid - Navinder Singh Sarao - he isn't a criminal. He is a hero. He is the sort of guy who makes the market safe for ordinary investors. Here is to hoping the English judge treats the extradition request with the contempt it deserves. John Post script: This post caused some debate in our office. Two objections were raised. (a). There may be some real investors who use algorithms to "just get the trade done". There is an algorithm like that available on interactive brokers. A "just get it done" algorithm may also front-run a spoofer. (b). If you allow spoofing you would wind up with enormous quantities of it. It would get to the point where maybe 99.9 percent of offers in the market - especially ones just outside the money - would be spoofs. This could be solved with a very small fee - reflecting costs - for placing an order. The fee would probably need to be less than 1c per $100,000. Neither of these objections however undo the main argument which is (a). Spoofing makes profits at the expense of front-running computers. (b). It thus will reduce the number of front-running computers. (c). Front running computers make profits at the expense of real investors including our clients. (d). Therefore spoofing helps my clients and I like it. Navinder Singh Sarao really is a hero. J PPS.Navinder Singh Sarao is a kid because he operates out of his mum's basement. He was really in his 30s - but that is still a lot younger than me. Posted by John Hempton at 5:51 PM 1
A few months before the Flash Crash, in March 2010, a representative of Sarao's brokerage informed Sarao that the CME had contacted the brokerage about his cancellation of a "huge amount of orders from the order book,'' and that such conduct was "not allowed." Sarao responded in an email to the brokerage and CME saying he was merely showing a friend "what occurs on the bid side of the market almost 24 hours a day, by the high frequency geeks." Sarao's email also asked whether the questions about his trading suggested the CME will start to cracking down on "mass manipulation" by "high frequency nerds." Pointing the finger at another trader, Sarao said: "I see he continues to do this all day every day, yet you have a problem when I showed someone it for 5 mins?" Haha rofl.
I think the conclusion is pretty clear: Sarao's turning OFF the algo caused the crash. We need Sarao and his ilk.... He kind of reminds me of the Silk Road guy, making lots of money right in front of the authorities' eyes then getting royally fucked because they didn't have a back up plan or they didn't know when to quit...
WASHINGTON/SAN FRANCISCO, April 23 (Reuters) - The five years it took regulators to bring high-profile charges against a UK trader underscore how hard it is to spot wrongdoing in fast-developing markets, and may herald problems in detecting future mishaps...
http://www.bloomberg.com/news/artic...h-crash-says-he-simply-changed-his-mind-a-lot Some interesting tidbits: " he started his one-man operation in July 2005, first cleared his transactions through MF Global, the now-defunct firm that was headed by Jon Corzine. After MF Global collapsed in 2011, he traded through Marex Spectron and Knight Execution & Clearing Services LLC before settling on Chicago-based R.J. O’Brien." I wonder how much money he lost to MF Global? "In 2007, Sarao wrote to the founder of the company that published Trader Monthly, asking how he might be included on their list of 30 distinguished traders under the age of 30. He told the publication he made between $45,000 and $133,000 each day." OK, let's do the math, if this is true, and he traded just 200 days a year and we use the lowest number of $45K that is still 9 million bucks annually, way before the crash... His system must have gone bad if he only made 40 million during the next 7 or so years... He later said something that the majority of his worth were made in 20 days or so... Those 2 statements seem to be contradictory....
Something doesn't add up: http://www.telegraph.co.uk/news/ukn...fortune-while-his-mother-worked-two-jobs.html " "During the financial crisis, this guy, for want of a better word, had balls. He used to get into big positions, he saw the risk, he saw the reward, and he took on the trades. "There was this one day when the market was just collapsing...he just stood in the way, put in his bids, bought up the market and went home and went to sleep." When he came back the next day he was $13m up, said Mr Savvides. When he was told this, he replied: "OK, just get me out."" I have a hard time believing this story. First, his trading style was in and out in seconds, so I can't imagine him leaving a few thousand cars position on overnight (not to mention the margin and the math doesn't add up). Second, if he was making like 9 million around 2007 then 13 millions just in one trade, he should have made way more than 40 mill over 8 years. Unless we only hear about the winning days.... ---------------------------- What I really wanna know is, what his parents thought about him (basicly supporting an adult son for a decade) and what they think of him now???
The biggest traders are always the least consistent...A broker told me futures traders making in the mid 7 figures always have a few down months per year...I wouldn't be surprised if it was his case... IMO whenever there was a price shock on ES and his inventory of orders was filled, he was losing weeks if not months of profits...
First with MF. Then Knight for very short period, then settled @RJO TT (+API) + Edge Financial Technologies front-end (I thought it was ADL until getting more confirmation) RJO doesn't make sense to me: they offered dogsh*t rates when they established a proposal with me about 2.5yrs back for a non-hand-holding account/TT/significant volume. They join reality lately? Advantage/Newedge were "significantly" lower. This is wild. May have been in a chat group with Nav for a few months about 2-3yrs ago. Increasing coincidence as more details come in from twitterscape. If I correctly recall, got directed to a chat by another user off the RightEdge forum. I'm not a proficient coder, think I was trying to get help setting up a script to get my front-end and REdge talking wrt some filtered place-in-que type data. Was experimenting with RE. There were a few regulars in the group, but they were strong coders/mild experienced traders, was low key, not social, just technical help between each-other. It was sporadic conversation unlike a more common social chat I was in until a few yrs earlier. There was a guy in there, rarely posted, but when he did he was exceptionally persistent until completion of issue. Looking back, not much stands out in memory, blends in with all the other tech chats etc. But the following I remember like yesterday, never experienced this in my entire career. One day, there was talk about ES sizing issues. If I recall he was venting about fill times when getting over 1000+ lots after a certain event trigger, and wondering if we had been having similar issues. I was like, yeah whatever, 1000, bs, but kept to myself. I have seen those type clowns come & go in chats of the past. One of the other group members called him out on it, they got a little curt. So... I got my assumptions handed to me on a silver platter. Guy tells the other to pull up live DOM ES (don't recall what time of day), tells him to watch a level 8-9 ticks outside spread. I quietly did same curious to see what this was going to lead to. Sure enough, he flashed 2600 for about 10secs. Couldn't f'in believe it. He left the chat for a week or so, came back, more tech questions and no one mentioned a word what had happened. I'm 95% sure he stated he was in the UK. The other guys were US and 1 Singapore. He clearly was on his own dabbling with something like RE, with that size etc, seems like it may be fair guess it was him? I'm pulling my hair out, trying to find some way to pull up these logs. I have this ocd habit of cleaning out contacts I no longer chat with and I've formatted that PC at least twice since then. Ugh. Very unfortunate if this is all true about degree of spoofing. Doesn't look good for him. Per the emails, it seems like he was a victim of scale: relying on a 3rd party to build out your front-end for questionable use can help show intent. Established HFT shops skirting the line keep that all in-house, and likely extremely compartmentalized within the firm. Now with both Igor Osytacher and Nav out of the game, we probably won't be seeing those ridiculous 3000-5000 phony walls that were common until this past summer. ha. ES displayed depth is SOOO thin since Igor went down early Dec 2014. With that said, to echo MacroMan, this seems like an egregious patsy saga. There was some clown spoofing 81 contracts 2 ticks out ALLLLL day long last week. Much easier to do smaller size, but across 100's of products, having the same effect as all eggs in the ES basket. CFTC keystone cops don't stand a chance against it.
i would rather back a trader who makes me millions every year and has losing months than someone who consistently makes 1000 dollars every day.