UK trader arrested for May 2010 U.S. Stock market flash crash

gwb-trading · Oct 20, 2015

Syprik said:
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.

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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.

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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.

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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.

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More...

A recent article on Igor Oystacher...

The Man Accused of Spoofing Some of the World's Biggest Futures Exchanges
http://www.bloomberg.com/news/artic...-igor-oystacher-a-spoofer-he-was-known-as-990

syswizard · Oct 21, 2015

http://www.bloomberg.com/news/artic...ly-bars-three-traders-for-exchange-violations
At least the CME is cracking down on traders who spoof.
I wonder if Nav is banned from trading on the CME ?

Pekelo · Oct 22, 2015

syswizard said:
No question about it and NAV was a shrewd operator,
More...

No, he wasn't...

1. You don't write 100 emails drawing attention to you, specially complaining about something that makes you money.
2. Once you are officially warned not to do something, you change your operation, not telling them to kiss your ass.
3. You don't keep all your money in one place.
4. You should have at least a lousy 100K under the mattress, just in case.... Like for bail or running away...
5. You can spread your wealth around family members so it can be later unaccessable to authorities.

So a shrew fox, he certainly wasn't...

syswizard · Oct 22, 2015

Yeah Pek, I hear you and he did make some mistakes.
I don't think all 5 of your claims are true...especially #3 and #4.
The original bail would have required him to keep $5 million under his mattress.....
not practical. And Nav did have his money in more than one place....and he even had a separate fund with a different manager.

Pekelo · Oct 22, 2015

syswizard said:
The original bail would have required him to keep $5 million under his mattress.....
not practical. And Nav did have his money in more than one place....
More...

#3. He couldn't even come up with the reduced 50K bail. And again, it isn't just for bail but for disappearing or legal defense or hookers. Nobody should go to jail as a virgin..

#4. My point was keeping the money under different jurisdictions just in case. I think most of his money is in the Swiss account and he had a 2-3 million investment in some kind of gaming company... Hell, even gold under the tree would have been harder to find...

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Now going back to the Russian-American guy, first he actually enjoyed the fruit of his effort, second, so far he only got fines, what is nothing more than the cost of doing business. 700K fine for a 10 million year profit? Peanuts...
I think it was actually the company fined, not personally him, so even better...

So if we are talking about shrewed, so far he is the one, although that could change. I am sure he will end up in Russia, if it comes to prison terms...

syswizard · Oct 22, 2015

Pekelo said:
So if we are talking about shrewed, so far he is the one, although that could change. I am sure he will end up in Russia, if it comes to prison terms...
More...

Maybe he and Nav should join forces and scadaddle together to Russia

just21 · Oct 23, 2015

http://mobile.reuters.com/article/idUSKCN0SG1T720151022

Lawyer for accused 'flash crash' trader calls U.S. extradition request false

syswizard · Oct 23, 2015

just21 said:
http://mobile.reuters.com/article/idUSKCN0SG1T720151022

Lawyer for accused 'flash crash' trader calls U.S. extradition request false
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re: "Sarao's team are looking to block extradition on the grounds that the U.S. charges would not be offences under English law, and if they are, that he should be tried in Britain. "

IMHO I think this is a weak defense as he was operating on American exchanges....and he was a MEMBER of the CME.

Instead of wasting time on this, he should be submitting subpoenas to the CME Group for their data on the day of the flash crash.
From this data, he could prove that Nav was not the only one submitting and then cancelling orders to spoof the market.

londonkid · Oct 23, 2015

syswizard said:
re: "Sarao's team are looking to block extradition on the grounds that the U.S. charges would not be offences under English law, and if they are, that he should be tried in Britain. "

IMHO I think this is a weak defense as he was operating on American exchanges....and he was a MEMBER of the CME.

Instead of wasting time on this, he should be submitting subpoenas to the CME Group for their data on the day of the flash crash.
From this data, he could prove that Nav was not the only one submitting and then cancelling orders to spoof the market.
More...

A defence of 'everyone else was doing it' is unfortunately not a defence. Although there were likely other spoofers in the market what Sarao was doing was systematic and automated. It also happened after several direct warnings.

just21 · Jan 27, 2016

http://www.bloomberg.com/news/artic...s-flash-crash-blame-questioned-before-hearing

Study Says Sarao May Not Have Been Responsible for Flash Crash