I understand that he was layering the book away from the inside bid/ask, when the inside moved towards him the algo shifted the orders away so in theory he would never be hit. This is one of the key aspects of the prosecutions case as they are likely to try and show that it was not possible for his orders to be hit and he had no intention of them being hit. Whether he could be hit I don't know it would depend on how fast his algo acted. 'Last look' as been happening in other venues for ages. If someone comes in and swipes everything at market the HFT is so fast it can get out of the way and choose not to be hit. how messed up is that lol. What a lot of the people are not grasping is that it is not only sellers that move markets down quickly it is a lack of buyers. Nav probably worked out that by showing an order book imbalance a lot of the algos would deactivate temporarily or skew away from buying. This made the selling have more effect as less buyers were willing to step up.
Last night I said the exact same thing to my wife in digust. Those guys essentially walk on egregious manipulation that had exceptional large $ consequences, no mention of clawbacks, and this guy gaming the gamers is facing serious criminal charges. Furthermore, how do Michael Coscia & Nav get such criminal charges laid on their feet when Igor Oystacher did the EXACT same thing just this past fall and received minimal reprimand? See article below. Personally I would hold out as long as possible in UK and see how the charges fall with Coscia before coming state side. CFTC need to get this through their coke bottle glasses: sophisticated HFT deploys the exact same methodology, but on a much larger scale using less visible size. Here is one vanilla algo that is actively deployed: build low key spoof pressure across all SP500 cash equities throughout visible L2 stack when SP500 tick is approaching a maxima/minima node (example metric: >250 issues hitting the ask, set heavier peacock orders just above in the cash). Have separate algo execution accounts sitting on opposing side of spread on ES & SPY with set fraction matching notional risk. ie $10MM in equity cash, 0.5x ($5MM) on ES... modelling on this front stays rather stationary as it is tied to avg liquidity measures, so look for a repeating fractional notional relationship between cash and futures if you think you've cornered an offender. They auto-randomize order size counts so it is hard for regulators and competitors to see communicating patterns, but those randomizers feed sizes to both in-house algos to remove sizing from one digital eye interpreting other side of spread where execution algo #2 is operating. Since Nav's platform was not entirely sophisticated, he likely consistently used those 188/289 lots sizes on execution algo so the spoofing algo could remove said size from que stack interpretation...or vice versa. He was also naive to use very large spoof size on ES, and ES only. 600 lots, stacked 6 high for a 3600 count? You were asking to be flagged. ----------------------------------------------------------------------------- http://www.wsj.com/articles/how-spoofing-traders-dupe-markets-1424662202 One June morning in 2012, a college dropout whom securities traders call “The Russian” logged on to his computer and began trading Brent-crude futures on a London exchange from his skyscraper office here. Over six hours, Igor Oystacher’s computer sent roughly 23,000 commands, including thousands of buy and sell orders, according to correspondence from the exchange to his clearing firm reviewed by The Wall Street Journal. But he canceled many of those orders milliseconds after placing them, the documents show, in what the exchange alleges was part of a trading practice designed to trick other investors into buying and selling at artificially high or low prices. Traders call the illegal bluffing tactic “spoofing,” and they say it has long been used to manipulate prices of anything from stocks to bonds to futures. Exchanges and regulators have only recently begun clamping down. The 33-year-old Mr. Oystacher referred inquiries to a spokesman for his firm, 3Red Group LLC, who declined to comment for this story. In his clearing firm’s correspondence with the exchange, Mr. Oystacher—co-founder of Chicago-based 3Red and well known in the clubby world of Chicago trading—is quoted as saying his trading is based on “analytics, statistical modeling and relative value theories.” Mr. Oystacher’s trading activities on that day and others have been the focus of investigations by the Commodity Futures Trading Commission, or CFTC, and several exchanges into whether he broke securities laws or committed fraud, according to court documents, exchange correspondence and interviews with current and former associates. One exchange, CME Group Inc., in November banned him from trading on that exchange for a month after alleging he engaged in spoofing behavior; he didn’t admit or deny any rule violations in the case. ............... In the Chicago criminal case that is pending, the U.S. Attorney last year charged Michael Coscia, a New Jersey high-frequency trader, in U.S. District Court with six counts of commodities fraud and six counts of spoofing in 2011. Prosecutors accused him of illegally earning $1.6 million from spoofing in the U.S. and Europe. He denied the charges and filed a motion to dismiss them, arguing that anti-spoofing laws are vague. The U.S. Attorney and a lawyer for Mr. Coscia declined to comment for this article. Mr. Coscia separately paid $2.8 million and agreed to a one-year trading ban to settle CFTC allegations in 2013 of spoofing, according to CFTC documents. He didn’t admit or deny the charges. While Mr. Oystacher’s company employs high-frequency traders, he primarily entered orders manually on his keyboard, documents show. A review of court documents and exchange correspondence and interviews with more than a dozen current and former associates of Mr. Oystacher’s provide a look at his trading style and show how complicated investigations into spoofing can be. ................................... He left Gelber in 2010. In 2013, the firm agreed to pay a $750,000 fine to the CFTC over orders in 2009 and 2010 that an unidentified trader entered and canceled, allegedly to affect the price of a stock-index future, a CFTC news release says. Gelber didn’t admit or deny the charges in accepting the settlement. In 2011, Mr. Oystacher and another Gelber trader, Edwin Johnson, started their own firm in temporary space in the old Chicago Board of Trade. They named it 3Red Group after the three red chairs they and another early employee used. Mr. Oystacher continued to make an outsize mark on futures markets. On one day in 2012, for instance, he traded more than 80,000 E-Mini S&P 500 futures—a type of contract on the stock index—with a combined notional value of nearly $6 billion, trading records show. His trading could sway markets, traders say. Mr. Oystacher’s trades began to draw attention from exchanges and investigators. The CME determined that on several dates between December 2010 and July 2011 he entered large bids and offers for silver, gold, copper and crude futures he didn’t intend to trade, according to a public CME disciplinary notice. He quickly canceled those orders, placing others on the opposite side of the market, the notice says. Fined and banned In November 2014, the CME fined him $150,000 and banned him from trading on the exchange during December 2014. Mr. Oystacher didn’t admit or deny any rule violations in agreeing to the fine and trading ban, the CME notice says. A separate investigation into his trading in Brent-crude futures on ICE’s European futures exchange on June 19 and 20, 2012—including the 23,000 commands—gives a glimpse into his trading. Several days later, a market-oversight analyst from the exchange wrote to Mr. Oystacher’s clearing firm, Advantage Futures LLC, asking for all documents and communications related to his trades and a “full explanation of the rationale behind the trade activity.” ICE provided an Excel spreadsheet showing a detailed history of instances where Mr. Oystacher entered and quickly canceled a bid or offer while simultaneously placing an opposite order. On June 19, Mr. Oystacher completed 430 such reversals—each could take a number of commands—and 167 the next day. In a letter to ICE Europe, Advantage quoted Mr. Oystacher as saying that “we are clicking in response to what we are seeing,” adding: “If we click quicker than most, it is a skill.” ICE said in a subsequent decision that it didn’t accept the rationale, calling Mr. Oystacher’s trades “manipulative behavior” and ordering him to cease “disorderly trading” on the exchange. Advantage declines to comment. ...........................
He was on a home internet connection running a spreadsheet, an ocean away from co-located algos. He must have been one of the slowest in the market.
It's just crap sensationalist reporting from the Dailymail. As a former network engineer I can tell you he's unlikely to have had any significant latency advantage. The packets are highly likely to have been routed to similar hubs for back haul anyways.
BTW I keep hearing this $9B notional figure. At which point was he trading/spoofing 160,000 contracts? The AGGREGATE notional of trades might have been around that figure but he never once showed anywhere near that size in a single contextual instance. The billion dollar figure is being used by the media and CFTC in a way to imply he was spoofing over 9 billion dollars of contracts at once with intent to heavily manipulate the market when in reality his churning of HFTs resulted in 11B total notional of trades for the entire duration for his trading during that time. I take it measuring the average HFT notional volume won't be part of this study for obvious reasons: it would worsen their case.
Strong questions raised here by streetprof. I can't help but echo similar sentiment: http://streetwiseprofessor.com/?p=9337
This "sentiment" misses the point. The evidence is quite strong he was manipulating the market, entering orders that weren't bona fide. Of course he'll have his day in court on that (unless he skips out). It's totally irrelevant whether he "caused" Seis De Mayo, or whether "XYZ HFT shop (or XYZ Wall St firm, or...) does it too."
I completely agree. Although streetprofessor is right too. What he did was illegal, but he did not cause this dip in the market. But there is one very important remark: They should catch all criminals who do, or did, the same so also big funds and banks. Or charge "not executed" orders.
No it doesn't, one of the main issues is the impact magnitude of his manipulations. This article makes a strong case for his defence.
UK 'flash crash' trader had links to establishment figures Navinder Singh Sarao, who operated from his parents’ home, invested in a company connected to a former judge, a City grandee and private equity tycoons Navrinder Sarao at Westminster magistrates’ court. Photograph: Priscilla Coleman/MB Media Simon Goodley and Juliette Garside Friday 24 April 2015 18.40 BSTLast modified on Friday 24 April 2015 20.01 B Navinder Singh Sarao, the British financial trader accused of making $40m (£27m) by manipulating US stockmarkets and in the process contributing to the 2010 “flash crash”, invested £2m of his profits in a company linked to a former court of appeal judge, a City grandee, a pair of private equity tycoons and a media entrepreneur. In a discovery that appears at odds with the first portraits of Sarao – who traded on the world’s financial markets in a tracksuit while frugally lunching on discounted sandwiches – the 36-year-old trader appears to be connected to major figures in the City and the British establishment. The fresh details of how Sarao’s trading profits appear to have filtered into more mainstream parts of the City have emerged after a week in which the previously obscure trader was propelled on to the front pages after his arrest by British police on Tuesday, and the US Department of Justice (DoJ) started extradition proceedings. The US authorities allege that Sarao, now dubbed the “Hound of Hounslow” in a reference to Martin Scorsese’s 2013 film The Wolf of Wall Street, “spoofed” financial markets from his parent’s semi-detached home in Hounslow using commercially available trading software to place $200m of false trades. The agency added that the supposed market manipulation contributed to the flash crash on 6 May 2010, when the Dow Jones index plunged 600 points in five minutes and created havoc in the world’s financial markets. The Guardian has established that Sarao invested £2m in a startup company called Iconic Worldwide Gaming, which was formed in 2013, and that he remains a minority shareholder in the business. Iconic holds patents for peer-to-peer gambling. The patents are licensed for use by Malta registered iconicbet.com, an online casino whose operating company is advised by a string of well-known names. They include Sir Robin Jacob, a former court of appeal judge; Sir David Michels, a former chief executive of Hilton hotels and erstwhile deputy chairman of Marks & Spencer; and Damien O’Brien, the Irish telecoms entrepreneur behind Sky talent show Football’s Next Star, who describes himself as the chief executive of the company Iconic Corporation. Their names and roles were detailed on the website theiconiccorp.com until the Guardian contacted the individuals involved on Friday, at which point information listing the directors was removed. Also listed as senior figures at Iconic Corporation are City financiers Miles Mackinnon and John Dupont, the founders of Mayfair-based boutique private equity firm MD Capital Partners, who say they raised the “pre-launch capital” for Iconic Worldwide Gaming and its linked gambling website iconicbet.com. Michels and O’Brien did not respond to invitations to comment, but Sir Robin Jacob confirmed he was a director of the operating company which controls iconicbet.com, and said his company was “an entirely innocent victim”. Jacob said he had met Michels and other directors on Wednesday following Sarao’s arrest and discussed the extent of the trader’s involvement. “We had a board meeting on Wednesday after this chap was nabbed. We have never met him and I knew nothing about him. I am a director of the operating company and the business of the operating company is to exploit some patents that were invented and registered by Mr O’Brien.” Dupont said: “Whilst we are aware that Nav Sarao Futures Limited acquired shares in Iconic Worldwide Gaming Limited at the end of October 2013, Nav Sarao Futures does not currently have any shareholding in the company. Neither I nor my colleague Mr MacKinnon have ever held board positions at this company.” He did not respond to follow-up questions about Sarao switching his holding to International Guarantee Corporation. Advertisement The US DoJ complaint states: “Around the time of the flash crash, Sarao took significant steps to protect his assets. In late April 2010, Sarao established a new entity, Nav Sarao Milking Markets Limited, which was incorporated in Nevis. Sarao appears to have created this company as part of a tax-avoidance strategy pursuant to which he also established, in 2012, International Guarantee Corporation, incorporated in Anguilla.” Dupont added that Jacobs and Michels are advisers to the Iconic Corporation, not Iconic Worldwide Gaming Limited. He said: “The Iconic Corporation to which you refer is not associated in any way with Iconic Worldwide Gaming Limited.” However, the two companies share the Iconic name and logo, while the the Iconic Corporation website – plus the Iconic Faceoff trademark being advertised there – are both registered to the Sarao-funded IWG. Meanwhile, Dupont, Mackinnon and O’Brien all occupy senior roles at both websites. Michels is a big name in the betting industry and a keen gambler in his free time. A fixture on the north London poker scene, he ran casinos and hotels group Stakis in the 1990s, and oversaw high-street bookmaker Ladbrokes during a seven-year tenure as chief executive of Hilton Hotels, which owned the bookmaker at the time. The Guardian has also established that, while Sarao operated on the fringes of the financial industry, his contacts penetrated the very heart of the City of London.