A London futures trader is appearing at Westminster Magistrates court this morning accused by the US Justice Department of being involved in the ‘Flash Crash’ five years ago when the Dow Jones Industrial Average plunged 600 points in five minutes.
The US Justice Department has issued an extradition request for 22 charges under US law against 37 year old Singh Sarao from Hounslow, west London.
He was formally arrested yesterday and is being held in custody for today’s proceedings.
Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division and Special Agent in Charge Robert J. Holley of the FBI’s Chicago Division announced that the charges were raised in the federal Northern District court of Illinois.
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.
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.’