British trader Navinder Singh Sarao arrested over 2010 ‘flash crash’

A UK futures trader has been charged by US authorities with wire and commodities fraud for allegedly contributing to the 2010 “flash crash”, which saw the Dow Jones Industrial Average plunge more than 600 points in a matter of minutes.

Navinder Singh Sarao (37), of Hounslow, has been arrested in Britain, and US authorities are seeking to extradite him to stand trial in Illinois.

He could not immediately be reached for comment.

The flash crash of May 6th, 2010, led to well-known stocks such as Accenture trading at just one cent during the mayhem, and thousands of trades were subsequently cancelled.

Chaos

The chaos across US equities exchanges was triggered by a large move in the underlying futures market. The repercussions also rattled other markets that trade electronically, including bonds and currencies, illustrating the potential risks of a global financial system linked by high-powered computerised trading firms.

The US justice department alleged in a criminal complaint that Mr Sarao used an automated trading program to manipulate the market for S&P 500 futures contracts – known as E-Minis – on the Chicago Mercantile Exchange (CME), the largest US futures market.

Pattern

The authorities said he used a variety of trading techniques designed to push prices sharply in one direction and then profit from other investors following the pattern or exiting the market. The justice department said by allegedly placing multiple, simultaneous, large-volume sell orders at different price points – a technique known as “layering” – Mr Sarao created the appearance of substantial supply in the market.

After regulators released their findings, the CME vigorously defended the operational integrity of the futures market and the E-Mini contract.

Copyright The Financial Times Limited 2015