As questions continue to mount around the futures trader who financial regulators say helped spark one of the most dizzying market crashes in recent memory, documents have emerged in which the 36-year-old Londoner paints himself as merely impulsive and unorthodox.
“I am a trader who changes his mind very, very quickly,” Navinder Singh Sarao told British regulators in a 2014 email, Bloomberg News reported. “I trade very large but I change my mind in a second.”
"And all this is done with the [sic] my hand and a mouse," he wrote.
This characterization clashes with the popular perception, particularly in the months after the so-called Flash Crash of May 2010, of a wily algorithm or nefarious high-speed trader destabilizing markets and precipitating a violent 1,000-point swing in the Dow Jones Industrial Average.
Sarao, who has challenged extradition to the U.S. and will await further legal developments in virtual house arrest, called himself “an old school point and click prop trader” and vehemently denied engaging in market manipulation. Some analysts have expressed doubt that Sarao's actions could have been responsible for the Flash Crash.
The U.S. Department of Justice has brought charges of wire fraud and market manipulation against Sarao, who could face nearly 400 years in prison. At the center of the allegations is the practice known as “layering” or “spoofing,” in which a trader makes huge offers to sell or buy with the intention of quickly canceling the orders. Other traders respond to the apparent demand, creating a brief opportunity for the spoofer to cash in at artificially altered prices.
The complaint released by the Justice Department claimed that Sarao had pocketed some $40 million over the course of five years using such strategies, which are often associated with high-frequency trading (HFT). Sarao used off-the-shelf software from Edge Financial Technologies and Trading Technologies, which both offer products for algorithmic trading.
In Sarao’s telling, however, it was merely “intuition” that drove his eyebrow-raising trading style, carried out largely in his parent’s suburban London home. Though he was using sophisticated software to carry the trades out, he distanced himself from high-frequency traders.
“I don’t like the HFT arena and have complained to the exchange numerous times about their manipulative practices, please BAN IT,” he wrote to the British Financial Conduct Authority.
The documents shed new light on a case that has brought scrutiny not only to this previously obscure trader, but also to the financial regulators who evidently took more than five years to clamp down on him, despite warnings dating to 2009.