They allege that Sarao:

…used an automated trading program to manipulate the market for E-Mini S&P 500 futures contracts (E-Minis) on the Chicago Mercantile Exchange (CME).  E-Minis are stock market index futures contracts based on the Standard & Poor’s 500 Index.

Sarao’s alleged manipulation earned him significant profits and contributed to a major drop in the U.S. stock market on May 6, 2010, that came to be known as the “Flash Crash.”

On that date, the Dow Jones Industrial Average fell by approximately 600 points in a five-minute span, following a drop in the price of E-Minis.

US Justice Department. Image: http://www.justice.gov/

The US authorities allege he employed:

a ‘dynamic layering’ scheme to affect the price of E-Minis.  By allegedly placing multiple, simultaneous, large-volume sell orders at different price points—a technique known as ‘layering’—Sarao created the appearance of substantial supply in the market.

As part of the scheme, Sarao allegedly modified these orders frequently so that they remained close to the market price, and typically canceled the orders without executing them.

When prices fell as a result of this activity, Sarao allegedly sold futures contracts only to buy them back at a lower price.  Conversely, when the market moved back upward as the market activity ceased, Sarao allegedly bought contracts only to sell them at a higher price.

The US Justice department add: ‘The charges contained in the complaint are merely accusations, and the defendant is presumed innocent unless and until proven guilty.’