'Flash Crash' Trader Pleads Guilty, Facing Up To 30 Years In Prison (telegraph.co.uk) 94
Slashdot reader whoever57 writes;
Navinder Sarao, the British trader who was accused of causing the "flash crash" in 2010 and was extradited to the U.S. this week has pleaded guilty to one count of wire fraud and one count of spoofing. No details of the plea deal have been released, but it's believed that he's agreed to forfeit $13 million. Several years of jail time are also expected for Mr. Sarao.
From the Telegraph: Sarao, a 37-year-old working out of a modest suburban home in Hounslow in west London, allegedly made tens of millions of dollars with a computer program that could automatically manipulate prices... "Navinder Sarao abused sophisticated technology to make a quick profit, and jeopardised the integrity of US financial markets," said Assistant Attorney General Leslie Caldwell.
Sentencing guidelines suggest he'll spend at least six and a half years in prison, though he faced a maximum possible sentence of 30 years and still faces the possibility of $38 million in sanctions.
From the Telegraph: Sarao, a 37-year-old working out of a modest suburban home in Hounslow in west London, allegedly made tens of millions of dollars with a computer program that could automatically manipulate prices... "Navinder Sarao abused sophisticated technology to make a quick profit, and jeopardised the integrity of US financial markets," said Assistant Attorney General Leslie Caldwell.
Sentencing guidelines suggest he'll spend at least six and a half years in prison, though he faced a maximum possible sentence of 30 years and still faces the possibility of $38 million in sanctions.
Integrity? (Score:5, Interesting)
Navinder Sarao abused sophisticated technology to make a quick profit, and jeopardised the integrity of US financial markets,
If one guy can cause this, it proves that the US financial markets *intrinsically* don't have much integrity.
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If one guy can cause this, it proves that the US financial markets *intrinsically* don't have much integrity.
How much do you think those funny bits of paper in your wallet are intrinsically worth?
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Nothing you can't wear, eat, or live in is intrinsically worth much of anything.
That includes shiny bits of soft metal, for those idiots who want to return to the gold standard.
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Nothing you can't wear, eat, or live in is intrinsically worth much of anything.
There are many resources that have intrinsic value but don't fit into those three categories. With iron I can make weapons and come steal all your clothing, food, and shelter, for example. Technology has intrinsic value as it allows us to harness more resources faster, so we can produce more/better food, clothing, and shelter.
Even non-physical things, like ideas, are resources that have intrinsic value. Being able to accurately tell the time and predict the seasons means I can better plan how I grow food. G
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That includes shiny bits of soft metal, for those idiots who want to return to the gold standard.
So, does this mean you wouldn't have a problem in allowing people to transact in such currencies and related currencies? After all, they'd only be hurting themselves, right?
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An entirely different question.
If I may attempt to restate what: that poster is saying:the exchange's means of matching potential transactors has some kind of serious inherent problem, if it's so fragile that one person could do such terrible damage, as described.
rA related notion: Weinberg's Second Law: If builders built buildings the way programmers wrote programs, then the first woodpecker that came along would destroy civilization.
Re:Integrity? (Score:5, Insightful)
If one guy can cause this, it proves that the US financial markets *intrinsically* don't have much integrity.
All stock markets are unstable, not just the US. You just need one rumor and *bam* you instantly wipe off $$$. Stock markets are run by people and it all comes back to Agent K's quote:
The person is smart. People are dumb, panicky, dangerous animals, and you know it!
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Exactly. It seems a lot more plausible that this possibility is in place so that the large traders can defraud the small ones, and this person is punished for overstepping his position, not on any valid legal grounds.
Re: Integrity? (Score:2, Insightful)
https://en.m.wikipedia.org/wiki/Sergey_Aleynikov
Ignore huge corp behind curtain.
Re:Integrity? (Score:5, Interesting)
> If one guy can cause this,
There are whole companies dedicated to precisely this. It's called "high-frequency trading". I'm afraid what this gentleman failed to do was to "pay his cut" to the others in the business, and to make it too apparent that the "liquidity" of US markets is designed precisely to allow skimming money from the system through arbitrage.
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There are whole companies dedicated to precisely this. It's called "high-frequency trading".
No, it is called "market manipulation", which is illegal whether you do it with trading chits, a computer, or smoke signals.
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> No, it is called "market manipulation"
Illegal or not, it's the basis of high frequency trading. The instantaneous sales, _themselves_, cause direct feedback and tip the market in various directions, which the high frequency traders pre-analyze and step out at _precisely_ the moment to maximize their own profits. It's built into the system.
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Illegal or not, it's the basis of high frequency trading. The instantaneous sales, _themselves_, cause direct feedback and tip the market in various directions...
This is no different than snail trading, if it is even a problem, which is far from clear.
which the high frequency traders pre-analyze and step out at _precisely_ the moment to maximize their own profits. It's built into the system.
Ahem. There is nothing wrong with maximizing profits, provided it does not involve market manipulation or other illegal activity. BTW, now that pretty much 100% of traders are on a "high frequency" platform now, it's a level playing field again. Everything just happens faster. How scary is that? Does a jet aircraft scare you compared to a horse?
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> provided it does not involve market manipulation or other illegal activity.
HFT relies heavily on the positive feedback loops it starts, and rides like a surfboard, to deal hundreds or thousands of incremental trades to a new price. The volume of trading _itself_ generates positive feedback.
> BTW, now that pretty much 100% of traders are on a "high frequency" platform now,
I'm afraid you're overstating its popularity. HFT peaked in roughly 2009, and has fallen to less than 50% of trading volume in th
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HFT relies heavily on the positive feedback loops it starts, and rides like a surfboard, to deal hundreds or thousands of incremental trades to a new price
No. If it did work that way it would quickly be shut down as illegal.
HFT peaked in roughly 2009, and has fallen to less than 50% of trading volume in the last few years. Revenue from it has also dropped profoundly in the last 5 years.
You seem to be confusing high frequency trading with hedge funds. And if revenue dropped so profoundly, then what are you worried about?
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>> HFT relies heavily on the positive feedback loops it starts, and rides like a surfboard, to deal hundreds or thousands of incremental trades to a new price
> No. If it did work that way it would quickly be shut down as illegal.
No more than insider trading is normally shut down.
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So now you're flipping from market manipulation to trading on inside information. It's all rigged, right?
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No, it's not "the basis of high frequency trading". Sarao was not engaged in HFT. No one can conduct HFT against the Chicago Mercantile from London (if the orders are actually being made from London, as Sarao's were). The latency is much, much, much too high.
Sarao was manipulating simplistic HFT and other automatic-trading algorithms by placing and cancelling large volumes of trades in a particular direction. HFT systems place a lot of trades, but they're hedged positions, not all going in the same directio
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"Market Manipulation" is the basis of high frequency trading. I wasn't claiming that what Sarao was doing was, itself, high frequency trading.
Much of the profit in high frequency trading comes _precisely_ from providing small feedback loops, and cycling through them all the way to where the stock bottoms out or peaks, then riding those same cycles the other way as the stock returns from any over-response. And yes, the high-frequency generates small positive feedback loops that drive stocks more quickly towa
Goldman Sachs does this everyday (Score:5, Insightful)
Citadel too (Score:1)
Re: Integrity? (Score:1)
What did he abuse! High frequency trading algorithms used by the likes of Goldman Sachs, Cidadel, and other vampire squid investment firms?
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So what? he still needs to burn for it.
Re:Integrity? (Score:4, Informative)
Sure, technology made this fraud a lot easier to commit, but technology isn't an intrinsic part of this ploy; he simply used computer algorithms to implement a lightning-fast pump-and-dump scheme.
Basically, what he did was the equivalent of putting out fake advertisements in a newspaper saying that he'd buy a lot of shares of a certain stock at elevated prices. Traders, seeing these ads, get the feeling that this stock is now worth a lot more than what it is trading at, so they start buying this stock at higher and higher prices. This allows him to eventually sell at high prices the shares he had already owned, making a profit. Meanwhile, when these other traders try to answer these ads, they get no answer and are thus left with a ton of overvalued stock.
Pump-and-dump, insider trading, etc. can all screw up the value of stocks, and they need to be prevented for the market to operate "correctly"; that's why there's laws making these schemes illegal. And while laws don't prevent these crimes, they can certainly help in reducing them.
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If one guy can cause this, it proves that the US financial markets *intrinsically* don't have much integrity.
No, it only shows that it was early days for high speed trading technology and regulation thereof. Regulators did not take it lying down, far from it. One result was
circuit breakers. [wikipedia.org]
Lol, translation (Score:5, Insightful)
"Navinder Sarao abused sophisticated technology to make a quick profit, and jeopardised the integrity of US financial markets," said Assistant Attorney General Leslie Caldwell.
TRANSLATION:
"Only we get to fuck with the integrity of US financial markets." - Wall Street Bankers
Re:Lol, translation (Score:5, Insightful)
Or even more:
"You only get to cream off those sweet HFT profits if you're one of us"
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"Only we get to fuck with the integrity of US financial markets." - Wall Street Bankers
That's how regulation works - or, at any rate, how it's supposed to work. We want the financial system to supply liquidity and pool risk. We'd like it to be fair (for some value of "fair") and mostly transparent - but not entirely transparent, because if everyone has exactly the same information, then the only basis for trading is irrational preference.
So regulators try to achieve a balance between restricting clearly-abusive activity while allowing a certain amount of slipperiness, so the markets continue
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We'd like it to be fair (for some value of "fair") and mostly transparent
And I'd like a pony and a big red yacht and all the candy I can eat.
-
Some educated observers argue that HFT is simply abusive and should be corrected by regulation
Not me. I think HFT should be corrected by putting bullets in the heads of the perpetrators (CEOs and the like).
Abuse! (Score:2, Insightful)
He was abusing sophisticated technology that ruined the returns of other people using sophisticated technology, lock him up.
HFT (Score:5, Insightful)
But manipulate prices from your garage, and off to prison for you.
Re:HFT (Score:5, Insightful)
If he had paid the right people and bought a seat on the exchange, they'd have called it HFT and it wouldn't have been an issue.
His problem is that he didn't make enough money off of his scheme. If he only made 100X that, he'd be called goldman sachs and get a seat on the treasury.
Re:HFT (Score:5, Insightful)
Re:HFT (Score:4, Informative)
Exactly. Commercial interests do this all the god damn time and never face criminal prosecution.
He should have been rich to start with. Then he could rig the market legally. They went after him because they hate competition.
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If he had paid the right people and bought a seat on the exchange, they'd have called it HFT and it wouldn't have been an issue.
No, they wouldn't have, because what he was doing was nothing at all like HFT.
I swear, HFT has become the shibboleth of finance. Anything anyone doesn't like in the markets is automatically "HFT". Maybe folks should learn a bit about the thing they're claiming they see everywhere.
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That is not a fair accusation!
I just misunderstood what the other guys meant when they talked about all the Babes they'd slept with!
But what is the crime? (Score:4, Insightful)
Did he break the rules of the exchange? Did he trespass, break in, or otherwise tamper with the system?
If you're playing poker, actually manipulating the deck, looking at other people's cards, are both against the rules. Participants agree to those rules when they join the table.
Let's say you're really good at bluffing other people or reading their bluff, you've done nothing wrong. And calling it "manipulation" or "abuse" or "profiting" or "ruining other players" is just a way to obscure that fact.
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Great, then the what are specifically "those rules" he broke?
Re:But what is the crime? (Score:5, Informative)
If I remember correctly it consisted of software that would place volumes of sell orders well below the current price of the target stock, with no intention of honoring those orders. When other sell legitimate sell orders would start to list below the artificially lowered price they would be bought up and his bogus sell orders would be canceled before they would be filled. When the stock normalized again the stock that was purchased at the artificially lowered price was then unloaded at a profit.
Or something to that general extent
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You didn't answer (Score:1)
In response to my question and analogy, you offer an insult and an unsubstantiated claim which begs the question again.
If you don't know the answer, then don't reply, let alone insult.
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OK then, try this "Fuck off malicious hacker apologist"
Re: But what is the crime? (Score:2, Informative)
This article explains it reasonably well.... Basically he trolled the HFT algos
http://www.bbc.co.uk/news/business-35863848
Crime: Not being a Big Corporation (Score:4, Insightful)
He deliberately, willfully and maliciously broke those rules to favor himself and in the process caused other people, who were playing by the rules, to lose money.
Yes and no. He placed trades to make it look like a large amount of selling was about to happen then others place sell orders with even lower prices. He then quickly cancelled his orders and quickly bought the stock at the lower price. However had his orders gone through he would have been on the hook for them.
Compare this to the behaviour of large financial corporations who watch one exchange and when they see a large buy or sell order come it quickly, using high speed networks not available to anyone else, place an appropriate order on another exchange before the large order gets there in order to take advantage of the increase or drop in the price the large order will cause.
Both techniques are dishonest and both cause other people to lose money. However one technique was figured out by large financial corporations and the other by a lone trader. Guess which one is deemed to be legal despite the incredible similarity between the two techniques. If he is guilty why are the large financial corporations who are almost playing the identical game not?
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His crime was that he placed a bunch of trades where he had absolutely no intention of following through. There was some way that the US was able to prove that he absolutely never intended to fullfill the orders that he placed, IF they came through. Hi might have cancelled orders that got actually placed, in a regular manner, showing his fraud. I read about the details once, but don't remember them now.
My understanding of HFT is that the legal HFT companies are ready and willing to fulfill one of their craz
Re:But what is the crime? (Score:5, Informative)
Here's the criminal complaint as filed by the US government.
It includes what he did and why it was a criminal act.
https://www.justice.gov/sites/... [justice.gov]
What Navinder was trying to do with his bogus orders was to place them OUTSIDE the existing range of buy/sell orders and in large volume to make it appear that there were people actively buying which drives the price up. Ideally ,once he's made his actual sale, he stops placing his bogus orders and the price returns to normal. If he gets too greedy and screws up, he causes a crash and gets caught.
You can also do it with bogus sell orders to drive the prices down.
People have been doing that since forever, and it's been illegal for some time.
It's a variation of what you may have heard called "pump and dump", but instead of spreading rumors, he abused the market's internal machinery to artificially manipulate the prices with a specially designed computer program to prevent his trades from getting filled.
How is what he did different than HFT?
HFT traders do place orders that they intend to cancel, however, if someone successfully intercepted an order placed by a HFT trader, that order would get filled. It appears to me that there was no possibility that Navinder could fill the orders he placed.
The other difference is that the HFT traders are doing price discovery and arbitrage, which is to say they are placing their orders BETWEEN existing active buy and sell orders to get an optimal price for a trade. That is, they are trying to find the best sell and buy order prices so that they can place an optimal buy/sell order.
What HFT traders do tends to bring prices closer together and increase liquidity in normal conditions. These are good for the market (unless they screw up).
BTW, HFT and algorithmic trading are not the same thing, but they can be combined and done by the same people. Some of what HFT gets blamed for is actually the fault of computer-driven algorithmic trading.
Re:But what is the crime? (Score:5, Interesting)
Also, one thing that media forgets to mention is that his activity was noticed before the flash crash and the exchanges told him to stop doing that. He continued his bogus trades, and he made the mistake of lying about his activities in emails with the exchanges. ...
Nothing quite like documenting your crimes in email, is there? For some reason that sounds familiar, but it no longer seems important
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Buggy ordering ssytem (Score:2)
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Feudalism (Score:2)
HFT traders do place orders that they intend to cancel, however, if someone successfully intercepted an order placed by a HFT trader, that order would get filled. It appears to me that there was no possibility that Navinder could fill the orders he placed.
So literally the only difference between them is that if Navinder had screwed up he would not be able to cover his loses while the large corporations engaging in HFT can so it is legal for them but not for him? I thought we got rid of this idea that there are one set of rules for the rich and another set of rules for the poor back when we dumped feudalism but clearly someone forgot to tell the financial markets.
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Re:But what is the crime? (Score:4, Insightful)
Technically, his crime is fraud, placing orders he didn't intend to fill, which were then cancelled near-instantaneously as allowed by the stock market. In between his order and the cancellation, several honorable businessmen who payed a lot of money to have access to orders before they are sent to the stock market and to have their own orders be processed first, quickly bought and sold stocks so as to skim a little money off the order, but these poor innocent honorable businessmen lost money instead because the order they thought they were skimming money from didn't go through. All this also caused changes in the stock market that made a bunch of AI stock traders panic, crashing the market, and Mr Sarao was the least rich/important person who could be blamed.
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Sorry, have you got any evidence of this?
> several honorable businessmen who payed a lot of money to have access to orders before they are sent to the stock market
Any evidence of an unfair exchange at all? Anywhere?
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So that's a no then?
At what point has the exchange given market data (Buy / sell orders) to someone before someone else?
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Or a broker for that matter?
Yes, I'm aware of front running orders, it's bad business, but that's within a broker, who's selling that market information before it goes to the market / exchange? Who has access to that data aside from the exchange?
No banker responsible for 2008 is in jail. (Score:4, Informative)
And they got to keep their bonuses. The system is corrupt to the core.
Re: "Abused" technology? (Score:1)
Just justice? (Score:4, Insightful)
cancelling banned (Score:2)
So cancelling orders (his apparent "crime" http://www.telegraph.co.uk/fin... [telegraph.co.uk]) is now illegal in USA. Wonder what the market impact of that will be.
Also why did UK allow the extradition. He wasn't in USA and quite possibly didn't break any laws where he was; this looks like USA doing the usual thing of trying to make it's own laws global.
So afraid of 1's and 0's (Score:5, Insightful)
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It always boggles my mind when people who abuse computers for financial gain face harsher sentences than so many rapist and murderers (not exclusive).
The host for a local radio talk show five years ago talked about a man who got a longer prison term for having sex with a dog than a child. Parents called in outraged that a dog was worth more than a child. Animal right activists called in outraged that a child was worth more than a dog and the man didn't get the death penalty. The host let it go downhill from there. And that was on Christmas Eve!
Re: (Score:2, Funny)
What if it was a puppy?
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What kind of justice is this (Score:2)
when the big U.S. financial institutes and banks do this and massive micro-trading, it's legal, but when someone else moves on their little game, it's illegal and calls for extradition? Criminals.
Good start... (Score:4, Insightful)
now when do they put all the bank executives that caused the crash from before that in prison? Or is this the patsy that we are all supposed to point at and ignore that the same scumbag bankers are doing the same shit today at Wells Fargo and other places?
What is he accused of? (Score:2)
After some gooling, the problem for me is: The 2010 flash crash occured on May 6, 2010, while the Dodd–Frank Wall Street Reform and Consumer Protection Act, which makes spoofing illegal, only came into effect on July 21, 2010. And it is a US law, which does not have an effect on the extradition from UK.
Past, present and future (Score:2)
This guy was only doing what many of the large financial houses were and still are doing.
Article premature (Score:2)
Sick of articles that say that someone is going to be sentenced or prosecuted, it's pointless.
Tell me when it's actually happened.