'Rogue trader lived in the suburbs because faster internet there gave him split-second advantage over City dealers worth millions of pounds' Navinder Sarao lived in parents' modest home in suburban West London Thousands of his 'high-frequency trades' could be faster than City dealers 36-year-old amassed over £26million in just four years living at their house He is accused of using computer programs to create 'spoof' transactions By TOM KELLY and INDERDEEP BAINS and VANESSA ALLEN FOR THE DAILY MAIL and MARTIN ROBINSON FOR MAILONLINE PUBLISHED: 00:55, 24 April 2015 | UPDATED: 09:59, 24 April 2015 Suspected rogue trader Navinder Sarao lived in his parents' modest home because it gave him a split-second advantage worth millions of pounds - and a potential £40million offshore nest egg. His family's semi-detached house in suburban West London is closer to an internet server used by one of the major financial exchanges, giving him a nanosecond advantage over rivals in the City. His thousands of high-frequency trades could be processed faster than those from dealers in Central London, giving him a massive commercial advantage. Sarao, 36, was dubbed the 'Hound of Hounslow' after it emerged he lived at home with his parents, despite allegedly making £26.7million in just four years of dealing from their home. +6 Suspected rogue trader Navinder Sarao (circled) lived in his parents' modest home because it gave him a split-second advantage worth millions of pounds +6 Sarao's family's semi-detached house in suburban West London (pictured) is closer to an internet server used by one of the major financial exchanges He was arrested on Tuesday at the request of US authorities, who have accused him of helping to trigger the Wall Street 'Flash Crash' of 2010, in which almost a trillion dollars was wiped from global share prices. The former Brunel University student allegedly made £550,000 in five minutes on the day of the 'Flash Crash', the biggest one-day collapse in Wall Street history. He is accused of using computer programs to create 'spoof' transactions on the Chicago Mercantile Exchange, and faces charges which could carry a 380-year prison sentence. +6 Arrest: Navinder Singh Sarao is accused of making £26million by 'spoofing' the stock market from his parents' semi in Hounslow, west London He spent a third night in custody last night after failing to pay the £5million surety demanded by the courts to grant him bail. Neil Crammond, who in 2002 helped train Sarao in his first trading job at Futex in Woking, Surrey, said he had quickly become one of its most successful traders, and that the family's home in Hounslow was perfectly located for Sarao's operation. He told the Daily Mail: 'One of the exchange servers is based at Slough. The nearer you are the faster your order travels. 'He could overtake orders from the City, meaning he was better placed to profit on tiny fluctuations in the market. It's only nanoseconds but these minuscule amounts of time are literally worth a fortune to traders. Every nanosecond counts.' There is no suggestion of any wrongdoing by Sarao during his time at Futex, which he left in 2008. According to The Times his company accounts show that he paid £23million to an employee trust plus another £15million 'guarantee fee' - a type of security - was also paid in, taking it close to £40million. A former colleague told MailOnline today: 'He was a super human trader - we were in awe of his ability to make money. When he left Futex he took £2.5million from his account with him. That was unheard of. 'We were all encouraged to set up offshore accounts. If he has as much money as people think then that's where it'll be'. +6 Sarao (pictured in court) spent a third night in custody last night after failing to pay the £5million surety demanded by the courts to grant him bail Sarao allegedly masterminded – from his home computer – the Wall Street ‘Flash Crash’ of 2010 in which almost a trillion dollars was wiped from global share prices. But the whereabouts of his alleged £26million profit is a mystery. Sarao once wrote to a trade magazine claiming he made between £30,000 and £88,000 each day, but former colleagues said the trader had scant regard for the trappings of his success, living a frugal life. I don't think he's ever had a girlfriend... He didn't seem interested in meeting girls unless it was strippers in these bars Aman Singh, former classmate He is said to have 'loved making money, not spending it', and friend told MailOnline he would make £250,000 a day trading. Despite his alleged wealth he would travel to work late so he could buy off-peak tickets, only have lunch if he could find cut price sandwiches and shunned drinking in pubs for pints of milk at his desk. Sarao, who was scruffy and dishevelled in the dock during his extradition hearing on Wednesday, was able to offer a £5million surety to secure conditional bail - but it is yet to be paid. The Brunel University graduate is said to be 'scruffy', 'not flashy' and does not own a car so uses a fold-up bike - but is sometimes seen in his parents' Vauxhall Corsa. Adam Whiting, a fellow trader who sat next Sarao for eight months, said: 'One thing I will say is Nav used to wear a tracksuit every day even when an early millionaire!' He added: 'Everyone banging on about his s***** Hounslow house. From what i remember Nav only loved making money, not spending it'. +6 First job: Sarao started his trading career at this office in Woking where former colleagues described him has a 'legendary' trader who made huge sums of money +6 Panic: Traders at the New York Stock Exchange watch in disbelief as the markets tumbled during the 'Flash Crash' five years ago Mr Whiting revealed that Sarao had spent £100 on clothing Sports Direct but he later made £15,000 on a single deal He said: 'When the trade came back he took all his clothes back.' Another former colleague told MailOnline: 'Nav is a bit like Rain Man. He would never come out drinking, never socialise, I'm not sure he had friends, but he was quite brilliant at his job. 'In six months in his last job before going it alone I know he made up to £4million in six months and at Futex he made £250,000 a day at times. People were in awe of him and his brain. 'But he was also known for being tight, he would wear the same shell suit, had a fold up bike because he had no car and would drink milk from a bottle at his desk. However, school friends said Sarao had briefly lived a flashier lifestyle when he began making money in his mid 20s. Aman Singh, 36, a former classmate, said: 'He used to go to strip clubs where he would flash his cash and pay for dances. 'I don't think he's ever had a girlfriend. He didn't seem interested in meeting girls unless it was strippers in these bars.' In a 2014 email to the UK Financial Conduct Authority, Sarao said: 'I am a trader who changes his mind very, very quickly, one second I'm prepared to buy the limit of 2,000, the next second I may change my mind and get out. 'This is what is unique about my trading, I trade very large but change my mind in a second.' Sarao described himself as 'an old school point and click trader', saying he used his computer mouse to place each trade – which appears to contradict US allegations he used computer programs to manipulate markets. http://www.dailymail.co.uk/news/art...lers-worth-millions-pounds.html#ixzz3YDwibG2b Follow us: @MailOnline on Twitter | DailyMail on Facebook
The guy placed a number of large orders into the book which he never intended to get filled on. Seems the orders were placed using an algo that he paid a company to write for him. What he did was illegal. For people who have been in the business a long time it is common knowledge that millions of orders are placed into the markets every single day where there is no intention of getting filled. All of this is illegal but for some reason the regulators are turning a blind eye to it. The list of illegal activity in the markets at present is lengthy. Forex and US stocks being the most opaque markets, futures are fairly clean compared to these two. Perhaps the most blatant illegal activity in the markets in recent years has been the expected front running of client orders by banks. Dodd Frank has cleaned it up a little and we are just getting started in FX. The markets wont be cleaned up until they are all centralised fully (FX/stocks) and the ability to place/cancel order is slowed down. i.e. you put in a bid and it has to stay at the exchange for a minimum of 5 seconds. Perhaps then we could get back to old school trading. Not going to happen though as too many vested interests.
probably colocated in Aurora data centre for the algo and LD2 data centre for point and click execution.
Great article by Lewis.... By Michael Lewis, originally posted in Bloomberg Crash Boys The first question that arises from the Commodity Futures Trading Commission’s case against Navinder Singh Sarao is: Why did it take them five years to bring it? A guy living with his parents next to London's Heathrow Airport enters a lot of big, phony orders to sell U.S. stock market futures; the market promptly collapses on May 6, 2010; it takes five years for the army of U.S. financial regulators to work out that there might be some connection between the two events. It makes no sense. A bunch of news reports have suggested that the CFTC didn’t have the information available to it to make the case. After the flash crash, the commission focused exclusively on trades that had occurred that day, rather than orders designed not to trade -- at least until some mysterious whistle-blower came forward to explain how the futures market actually worked. But this can’t be true. Immediately after the flash crash, Eric Hunsader, founder of the Chicago-based market data company Nanex, which has access to all stock and futures market orders, detected lots of socially dubious trading activity that May day: high-frequency trading firms sending 5,000 quotes per second in a single stock without ever intending to trade that stock, for instance. On June 18, 2010, Nanex published a report of its findings. The following Wednesday, June 23, the website Zero Hedge posted the Nanex report. Two days later the CFTC’s chief economist, Andrei Kirilenko, e-mailed Hunsader. “He invited me out to D.C. and I talked with everyone there (and I mean everyone -- including a commissioner),” Hunsader says. “The CFTC then flew out a programmer to our offices where we showed him how to work with our data. Took all of a day. We sent him back with our flash crash data, and that was pretty much the last we heard about that project.” In October 2010, Hunsader was still poring over data from the flash crash. “Between October 7 and October 14, I noticed Sarao’s spoofing,” he says. Hunsader assumed it to be the work of an algorithm of some large high-frequency trading firm -- as this sort of deception had become common practice for big HFT firms. He told the CFTC about it in a phone call -- but that they hadn’t discovered it already for themselves surprised him. “It’s important to know the CFTC had our data, and the ability to use it in August 2010,” Hunsader says. “We were focused on stocks (the CFTC does futures), so they should have seen it right away.” Which raises another obvious question: If you are going to sit on this information for five years, why not sit on it forever? The people at the CFTC who decided to come forth, five years after the fact, with this new and improved explanation for the flash crash, must have known they would be creating a controversy with themselves at the center of it. It’s actually sort of brave of them. They’ve been ridiculed in the news media and will no doubt soon be hauled before various congressional committees. They’ll have annoyed their colleagues at the Securities and Exchange Commission, who now look like even greater fools than they did before, for not bothering to mention in their report on the crash the various nefarious activities of algorithmic traders, and instead offering up as the primary cause of the crash a stupid mistake made by a money manager in Kansas. The authors of the SEC report either consciously ignored or did not bother to acquire from the CFTC a lot of accessible, and damning, information about what was happening in the U.S. stock markets the day of the flash crash. The world will now want to know why they did this. (And why we should not instantly listen to Paul Volcker and fold these two regulators into one.) But it’s unfair to dwell too long on the regulators. Financial regulators, like editorial writers, are at best the markets’ last line of defense; they are less inclined to join any battle than they are to wander in afterward and shoot the wounded. Traders who seek to manipulate the U.S. stock market are meant to encounter resistance from the market itself. During the flash crash, Navinder Sarao apparently used Jon Corzine’s now defunct MF Global to place orders and clear trades. Why didn’t MF Global see what he was up to, or at least call him to ask him about it? There’s now a big business on Wall Street of firms renting out their HFT infrastructure to prop shops. Does that business depend on the brokers paying no attention to what their customers are doing? Do the big Wall Street firms that rent out their technology bear any responsibility for what their customers do with the weapons they've been given? For that matter, why don’t U.S. securities exchanges assume any responsibility for what happens on them? Sarao’s manipulative orders were placed on the Chicago Mercantile Exchange. Why didn’t the CME notice what was going on? Or did they notice, and simply not care, as the behavior was standard practice for their high-frequency trading clients? Then there is the biggest question of all: How can a guy working from his parents’ house in suburban England whose only actionable orders were to BUY stock market futures cause such a sensational collapse in U.S. stocks? On the day of the flash crash, Sarao never actually sold stocks. He was trying to trick the market into falling so that he could buy in more cheaply. But whom did he fool with his trick? Whose algorithms were so easily gamed that they responded to phony sell orders by creating a crash? Stupidity isn’t a crime. Still, it would be interesting to know who, at this particular poker table, on this particular day, was the fool. It would also be interesting to know how it occurred to Sarao that his trick might work. There’s a fabulous yet-to-be-told story here, about a smart kid in the U.K. who somehow figures out that the machines that execute the stock market trades of others might be gamed -- and so he games them. One day while he is busy trying to trick the U.S. stock market into falling, the market collapses, more sensationally than it has ever collapsed. And instead of digging some hole in Hounslow in which he might hide for a decade or so, or fleeing to Anguilla, where he has squirreled away his profits, he stays in his parents’ home and keeps right on spoofing the U.S. stock market -- and then is shocked when people turn up to accuse him of wrongdoing. He’s not some kind of exception to the standard operating procedure in finance. He’s a parody of it.
IMO you can only blaim the guy for pissing off the regulators but given his background that's also very understandable. What surprises me most in this whole story is that spoofing still is so effective.
What surprises me is that the CME hasn't taken action to limit spoofing: limit on cancels, charge for cancels, minimum duration on orders, etc. I mean there are just so many ways to handle this, yet nothing was ever done. No wonder the CME has been so quiet about this incident. This is really making them look very bad.
Do you think Edge can have problems for designing his software? I remember having a good conversation with one of their guys when I traded from the CBOT.