Summary: A single-man has been identified as a major cause in the “Flash crash” of 2010.
The “Flash crash” that rocked global financial markets 5 years ago in 15 minutes of panic has finally been pinpointed to be the result of a single man’s foul play, more or less: This Tuesday, United States prosecutors identified 36-year-old Navinder Singh Sarao as a central culprit, a sole man manipulating the markets through a crime called “spoofing.”
This is one of the vulnerabilities and exploits of today’s high-frequency trading. Sarao stands accused of entering and withdrawing thousands of orders, each worth tens of millions of dollars apiece, across various trading days in order to lower the price of futures contracts. Once the contract prices are artificially lowered in this manner, he buys them and profits on their subsequent rise.
Sarao is believed to have made $40 million this way over the course of 4 years.
And his manipulations had the dire effect of the flash crash on May 6, 2010, when he placed large orders over several hours, which bled into other markets, ultimately causing the Dow Jones industrial average to plummet 600 points in a few minutes.
For this, Sarao is in British custody, pending extradition from the United States, facing wire fraud and commodities fraud charges.
That a rogue figure could cause world markets to crash counts as a huge flaw in the system as is, and will lead, no doubt, to heightened securities and other precautions.
News Source: NYTimes