Navinder Sarao in 2010 caused a fall 1,000 points on Wall Street. And he did from his room in his parents’ house in London or at least that accuses the FBI.
On Wednesday, a British court opened the door so it can be extradited to the United States and processed in that country.
in US He faces 22 charges, including fraud. Sarao denies them and their lawyers expressed their intention to appeal the decision
also is accused of spoofing (distort). The practice of buying and sell with the intention to cancel the transaction before running .
If we leave aside for a moment the guilt or innocence of Sarao, it is clear that what did is amazing.
from a computer in the room in which I grew up, this young 37 year old who was dressed informally negotiated remotely a stock exchange in Chicago, a city that had never visited.
in less than five years, Sarao made more than US $ 42 million.
computerized Trade
Let us pause to think.
Sarao was operating on the Chicago Mercantile Exchange, a highly computerized market in which people, runners meat and bone, have little chance
runners bag must make decisions at a very fast speed to profit.
Computers running programs high frequency trading capture any signal that prices rise or down and jump ahead of human traders, by comparison, are in slow motion.
a financial operator could see that an order to buy appears on the screen of your average computer second after it is published in the bag. It could be a transaction large enough to drive the market and could allow you to make money if you buy quickly.
But because it competes with computers, by the time you click “buy” is too late .
Your brain takes half a second to process visual information, while a computer analyzed it in a few milliseconds.
the financial high frequency traders bought, the price increased and the operator lost his opportunity to make money.
in Chicago, the pressure is fierce to see purchase orders and selling only a few milliseconds before the other runner does.
Advantage milliseconds
As indicated Michael Lewis in his book “Flash Boys” a few thousandths of a second ahead are so valuable in terms of money that the most determined traders buy expensive properties that are near the bag and spend large sums of money in superfast cable installation for the signal to reach them only a few milliseconds faster.
Why? Because if your computer operator obtains the information two or three thousandths of a second before the others, can make money.
If it is an order of large purchase, your computer operator can buy first the others, “set the trend” and adding pressure on prices to rise.
the others who get the information in a flash with a flash , late, they buy when prices have already risen. And those inflated prices.
Spoofing computers
What Navinder Sarao understood, as did others before him, it was the high frequency trading makes the market nervous.
Because many of the high frequency traders were programmed with a software Similarly, designed, for example, to detect a large number of purchase orders and follow the trend. That way, everyone would more or less the same.
As a herd of sheep being pushed in one direction or another by a sheepdog, these operators would also shy away .
Or, to be more precise, they could be falsified. According to FBI investigators, Nav Sarao had modified a software available commercially, had altered an algorithm to do just that.
Using that program and high speed, argued the researchers, Sarao was placing large orders to sell (sometimes hundreds of millions of dollars in one day) but without any intention of proceeding to execute the transactions .
Instead, designed to make the rest of the market (computer operators) believe that sales orders exceeded purchase orders, indicating the market was about to fall.
Like sheep, computer operators sell to avoid losing too much money as that prices fell. The weight of selling would push prices down.
“flash crash”
Meanwhile (according to the FBI) Sarao placed an actual purchase order waiting for the market decline. Once the market was down, buy at a lower price and canceled sales orders.
When the market realized that the sales orders were gone, prices recover. And Sarao could sell at a higher price and make a profit.
Navinder Sarao is accused by the FBI to cause the “flash crash”.
That benefit could be small. But if this operation hundreds of times repeated in an hour, the benefits could be substantial .
Basically, according to the FBI, those orders were false, designed to “fool” the market. Sarao had no intention of executing them. And that “falsify” is a crime under the law of the United States.
The FBI not only accused Sarao placing purchase orders and false to manipulate the market for sale, but also she accused him of helping cause the flash crash of May 6, 2010.
that day was recorded what analysts called it a flash crash , the lightning falling stock markets, an earthquake on Wall Street left losses of hundreds of millions of dollars.
that day, index Dow Jones lost 700 points in a matter of minutes. The FBI says this occurred in part by the activity of Sarao .
Extradition
The lawyer Sarao, James Lewis, has attacked those arguments and ensures that there is a significant current of opinion in the City (as the financial heart of the UK known) and academia indicating that his client could not have “materially contributed” to the . flash crash 2010
Hounslow is a housing estate in London. There Sarao lived when, according to the FBI, caused the earthquake on Wall Street.
On the other hand, it argues that the financial earthquake occurred because a huge sell order was placed by US hedge fund called Waddell & amp; Read, a conclusion reached by the regulator of the stock market in the US, the Commerce Commission and futures markets in the United States.
The lawyers defending Sarao said that the US authorities are committing an “abuse of process” .
according to the extradition agreement between the United States and United Kingdom, the accused can only be moved from England if what is charged is a crime in English law. The spoofing is not defined as a crime in England.
Because his lawyers have advised not to issue any public statement, no one knows almost nothing Sarao personality.
“Brilliant”
it is known that has not been convicted of any other crime. He was described as a bright and sociable child in school. According to his lawyers, Sarao has a severe version of Asperger syndrome.
In 2010, he created a company on the island Nevis, in the Caribbean. Her name: “Nav Sarao Milking Markets Limited”
We also know that made US $ 42 million without leaving your room
.. Sarao was detained for four months, between April and August 2015, because it did not qualify for bail because his assets had been frozen by US authorities .
While in court, behind the glass of the rostrum of the accused protested. “How can this be happening am being punished for being good at my job”
And that can perhaps be inadmissible. But it was not a lie
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