Aside from the overall "flash crash" issue - I do hope he gets raked over the coals in general for this attitude though. No respect for the market it seems. I'd love for futures markets to actually be emptied of all these types but that's a stretch. Most people have learned to spot it and either adjust to it or ignore it these days. Most of the time when I see a sudden large order near the bid or ask I consider the possibility of price temporarily going in the opposite of the implied direction and these large orders are trying to get others to lean on it so liquidity can be filled on the opposing side right before the order is yanked.
And here goes bunch of fantasy traders... Interesting who are the Trading Software Company #1 in the complaint? By the spreadsheet mentioning I figure it's Sierra Chart? If that's true the guy deserves a bronze statue. To make 47 mils out of dingy hole like Hounslow using the cheapest software... fucking class!
Something doesn't add up in this story. The guy has supposedly made 27 mio over a 5 year period by spoofing, in terms of big money just crumbs. Yet he has the selling power to bring down the DOW a 1000 pts. So what astonishing amount did he make from that? IMO if he caused the crash it was purely unintentional and he's the one to get slaughtered because he ruffled the wrong feathers somewhere in time. A real big fish would be offered to pay a settlement and continue business as usual.
its done everyday. this guy pretty much leaked cascading effect strategy for the whole world to see. sad for him when the whole trading system itself is completely wrong. Algos of big firms do this all the time.
DOJ not only gave away one of the biggest strategy away, but handing out a paper on how it should be done. it also explains how much liquidity can move the market, which is not much.
Interesting and as usual well informed take from Levine@Bloomberg (http://www.bloombergview.com/articles/2015-04-21/guy-trading-at-home-caused-the-flash-crash) Main interesting takeaway is that he wasn't actually active in the market during the flash crash. At best you can argue that his selling pressure created a sense of menace which added to a skittish market. Best quote: In a responsive email dated May 25, 2010, SARAO wrote to his FCM that he had "just called" the CME "and told em to kiss my ass." Additional piece of information (not from the BB story) The most recently filed accounts for his company, Nav Sarao Futures, suggest Sarao has plenty of money somewhere to see him through. In 2013 he achieved a turnover of £9m, but had a cost of sales of just £65k and staff costs for his single employee of £7.6k. Nonetheless, he somehow achieved unspecified ‘administrative expenses’ of £14.7m. My two ticks worth: - this guy was clearly manipulating the market, but is probably not the only person to do so, nor the biggest. - he did so in a pretty crude and obvious way (not even randomised order size, I mean come on!), and he was rude to regulators. Darwinian justice says he's too stupid to be allowed out by himself. - if the 'admin costs' are commissions, then he wasn't even making any money out of this. - more likely the 'admin costs' are bogus, and so he's also tried to avoid taxes in a very crude and obvious way. Strike two for Darwinian justice. - He didn't cause the flash crash - this is being hung on him to make the extradition easier and scare him into plea bargaining once on US soil. - Dare I say the fact he is British makes him a more convenient target (you always get an english bad guy in american films I've noticed).
Some observations: 1) The complaint convincingly shows that the guy did not cause the flash crash. His program was active for 5 years, but a flash crash only happened on a single day. 2) Spoofing is designed to make money off HFTs who, after seeing a large order front run it. Hunting down spoofers kills HFT's only natural enemies (other than themselves) and gives them a license to print money by continuing to front run large size. Any "real" displayed size orders will thus disappear and the only orders remaining will be the HFTs themselves who are even faster to cancel than this guy. read more about this here: http://www.bloombergview.com/articles/2015-01-23/high-frequency-trading-spoofers-and-front-running 3) it is insane that apparently anyone can post orders valued at 1000 times a trader's/ firm's capital. ALL MARKET PARTICIPANTS SHOULD POST FULL MARGIN FOR ANY ORDER ENTERING THE BOOK, NOT JUST FOR EXECUTED TRADES.