US charges British trader with role in 2010 ‘flash crash’

The U.S. government has charged a British trader with illegal trading activity that contributed to the stock market “flash crash” of 2010.

The Justice Department and Commodity Futures Trading Commission announced Tuesday that it had brought criminal and civil charges against Navinder Singh Sarao and his firm, Nav Sarao Futures Limited, for reaping millions of dollars in profits by creating manipulating market prices with artificial trades.

{mosads}In particular, regulators argue that the high-speed trading activity Sarao used to gain an unfair edge also contributed to the May 2010 volatility that saw the Dow Jones Industrial Average swing up and down roughly 1000 points in a matter of minutes. The apparently inexplicable “flash crash” caught the attention of lawmakers and regulators, and led to a push for new rules to get better control over traders.

In their complaints, the government argued that Sarao’s firm used an automated trading system to try and obtain an illegal edge in the E-mini S&P 500, a futures contract meant to track alongside the S&P 500.

For over five years, Saro used modified software to try and drag market prices in a particular direction without actually completing trades, and then using that market movement to personally profit to the tune of over $40 million, according to the government.

The illegal tactic was used over 400 times between 2010 and 2015 according to the complaint, and the tool was “exceptionally active” on the day of the crash, according to the CFTC.

That day, regulators say the firm used their tool continually for two hours before the crash, and that manipulative activity “contributed to the extreme E-mini S&P order book imbalance that contributed to market conditions that led to the Flash Crash.”

British officials took Sarao into custody in London, and he faces extradition to the United States.

Tags Commodity Futures Trading Commission E-mini S&P Flash Crash
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