Nainder Sarao sits in jail because he cannot raise the £5M bail that is required for his release. He has apparently made millions while living in his parents' basement, but doesn't have access to the money because his accounts have been frozen. What is claimed by US authorities is that "... Mr Sarao placed "spoof" trades in E-Mini S&P derivatives in a bid to push the market in his favour. The orders would be placed and withdrawn in rapid succession using a customised computer programme, they allege", which sounds a lot like high-frequency trading. Perhaps his real crime was to copy the techniques of wealthy high-speed traders?
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UK Citizen in Jail for Causing "Flash-Crash", or Just High-Frequency Trading?
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(Score: 4, Informative) by n1 on Sunday May 24 2015, @02:29PM
The Wall Street Journal reports [wsj.com]:
(Score: 0) by Anonymous Coward on Sunday May 24 2015, @04:33PM
who had flagged his trades as suspicious as early as 2008
So he was on their radar for at least two years before he "flash crashed", and they didn't do anything about his trades? Then they waited almost five years before they arrested him for the 2010 "flash crash"?
I think Willie Sutton [wikipedia.org] should have become a banker. Then he never would have been arrested.
(Score: 5, Insightful) by Anonymous Coward on Sunday May 24 2015, @03:18PM
...which is what all HFTs do. So, where's the crime? If HFT is illegal, why aren't all HFT firms being shut down and their operators arrested? Is there some technical difference here that I'm missing between what he's doing and what HFTs do (besides not paying the government for the 'right' to manipulate the markets) because of oversimplification?
(Score: 5, Interesting) by n1 on Sunday May 24 2015, @03:36PM
I can only assume HFT is illegal, unless you're in the club of 'large financial institutions and their partners', then it's stimulating the economy and creating liquidity, helping the stock market and therefor the economy to reach all new highs.
Much like how insider trading is illegal, unless you're Goldman Sachs and JP Morgan, then it's your business model.
Don't you feel better now?
(Score: 2, Flamebait) by Dunbal on Sunday May 24 2015, @04:32PM
IT shouldn't be illegal. No spoofing in the world can force you to buy stock. If you're dumb enough to chase the price then you deserve what you get.
(Score: 3, Interesting) by kurenai.tsubasa on Sunday May 24 2015, @07:29PM
Have to agree here.
I know it would be a very bad thing short-term, but I'd like to suggest that when “flash crashes” happen that it should be illegal to hit the rewind button. Maybe long term if trillions of dollars of wealth could go up in smoke because of some algorithm somewhere, maybe, just maybe, folks might learn that gambling is a bad thing….
Just like I'd still rather be standing in line at a soup kitchen as long as the guy next to me was one of the assholes who turned the economy on its head in 2008.
I don't know. I can dream.
Capitalism? Invisible hand? Sure, there's a lot to that. Except the inevitable forces of power rear their ugly heads when the invisible hand is about to bitch slap a large swath of greedy, short-sighted, dimwitted investors who are supposed to be our “betters.”
(Score: 2, Interesting) by nitehawk214 on Sunday May 24 2015, @09:37PM
I would agree... if they put some kind of transaction fee on placing the spoof trades. Financial institutions get to rollback trades if they were placed in error too.
"Don't you ever miss the days when you used to be nostalgic?" -Loiosh
(Score: 2) by Mr Big in the Pants on Sunday May 24 2015, @07:48PM
I think the moral of the story is:
Learn your place slave!
If you have not worked out that this is a corporate run world where your expected role is to stay on the treadmill for as little as possible reward until you drop dead (preferably a few seconds after retirement) then you are a mouth breathing idiot...
(Score: 5, Informative) by n1 on Sunday May 24 2015, @03:49PM
Just to add to my previous comment:
Tim Worstall [forbes.com] says:
Nainder Sarao doing it however created instability and the supposed 'flash-crash'. I really don't think there's much more to it than if you're a TBTF or associated appropriately, it's business as usual. For the rest of us it would be 'fraudulently manipulating the markets'.
ZeroHedge has reported quite well on the hypocrisy of this situation after the arrest of Nainder Sarao.
http://www.zerohedge.com/news/2015-04-24/dear-cftc-here-todays-illegal-sp-500-spoofing [zerohedge.com]
http://www.zerohedge.com/news/2015-04-22/dear-cftc-market-manipulating-spoofing-taking-place-e-mini-just-today [zerohedge.com]
http://www.zerohedge.com/news/2015-04-28/dear-cftc-here-todays-illegal-spoofing-gold-futures [zerohedge.com]
(Score: 2) by darkfeline on Monday May 25 2015, @06:24PM
>The HFT guys are making money, yes indeed they are. But they’re making money in much smaller sums than the general investors in aggregate are saving through the collapse in spreads as a result of the extra liquidity. HFT, at least in normal market conditions, benefits the small investor most certainly, not costs her.
What kind of reality distortion field do you need to believe this? Money goes into the stock market, money comes out of the stock market. If I put in $5 and take out $10, those extra $5 dollars came out of someone else's pocket. If the big investors are making money, that money is coming out of small investors' pockets.
God knows we all of us have so much money that it's burning holes in our pockets, praise Wall Street for helping us out!
Join the SDF Public Access UNIX System today!
(Score: 3, Informative) by Anonymous Coward on Sunday May 24 2015, @03:50PM
Is there some technical difference here that I'm missing
The difference is that he didn't complete the orders., opening and then closing them before they were filled. He used them as a way to hack the trading algorithms of other people (computers) in the market.
I can't say if that rises to the level of illegality or not. The cynic in me says yes it is illegal but only if you get caught and enforcement is so lax that it takes a giant event like, say, a flash crash, to get someone interested in enforcement.
(Score: 5, Informative) by n1 on Sunday May 24 2015, @03:52PM
From one of the ZeroHedge links [zerohedge.com] I posted above:
(Score: 2) by Runaway1956 on Sunday May 24 2015, @03:59PM
That's what they think. How do they know that Sarao doesn't have all the components of a wireless computer embedded within his body? They'll have to encase him in a Faraday cage to stop him manipulating the markets!
(Score: 2) by DECbot on Sunday May 24 2015, @07:48PM
That or at least delete his cron tabs.
cats~$ sudo chown -R us /home/base
(Score: 1) by dingus on Tuesday May 26 2015, @02:15PM
I imagine they left his computer running, because it's been proven that police have no idea how computers work. They probably thought he was doing it by hand.
(Score: 0) by Anonymous Coward on Sunday May 24 2015, @08:13PM
That post is agreeing with me. Sure it is a defense of Sarao by saying it is common place. But that is what I said. You have to get caught and enforcement is so underfunded that nobody even looks without some gynormous event.
If you think that post is actually a defense of spoofing, re-read the first line, "6 years after we warned about the dangers from predatory HFT including such parasitic "strategies" as spoofing..."
(Score: 1, Interesting) by Anonymous Coward on Sunday May 24 2015, @06:46PM
Please stop posting about stuff you know little about. Many HFT traders do these sort of things.
Algo and HFT trading works even better for the favoured ones that get rollbacks when they screw up big time.
(Score: 3, Interesting) by Justin Case on Sunday May 24 2015, @04:00PM
I've been trying to learn about HFT and consider both sides of the arguments. (I know, wrong planet...)
The thing I don't understand is the part about creating a ton of orders "to push the market" and then canceling them. If it is a pending order that has not been filled (e.g. a limit order) why would that "push" the market? After all everyone knows they're not "real" yet. But if they are fulfilled orders why is anyone allowed to cancel them? That seems unfair.
If I place an order to buy 1000 at $10 and an hour later the price is $9.50, can I just cancel that previous already-filled order and rebuy at $9.50? I didn't think so.
In short, I'm having trouble understanding exactly how HFT jams the system. Once I understand that maybe I can figure out which, if any, set of ethics it fits into.
(Score: 0) by Anonymous Coward on Sunday May 24 2015, @04:12PM
It doesn't fit into any ethics, because the stock market is a silly child's game with pretend rules that make no sense. Wow, you had insider information and acted upon it? How horrible that you tried to save your money! Wow, you did HFT but cancelled the orders? It must be your fault that others acted upon this! It's just a game where people gamble to try to get more pieces of paper.
But if you're filthy rich, these 'rules' likely won't be enforced.
(Score: 2) by Justin Case on Sunday May 24 2015, @04:19PM
Just to put your reply in context, would you be one of those who think the government should not grant corporations permission to exist?
Or, if you're OK with corporations, how do you think they should obtain the investment seed money to build up their business? For example a railroad: where should they get the millions of dollars to pay for track and rolling stock?
(Score: 1, Interesting) by Anonymous Coward on Sunday May 24 2015, @04:55PM
The primary and secondary stock markets are completely different things anymore. This is doubly so when dealing with public corporations. No body thinks they are buying shareholder voting rights (due to the shear expense of getting that much stock) or dissolution assets (as companies either live forever or bankrupt) anymore and dividends are the exception, not the rule. It is gambling, plain and simple except the major players make the rules.
(Score: 1) by nitehawk214 on Sunday May 24 2015, @09:43PM
HFT has nothing to do with companies raising money to buy capital. It is just a means to manipulate stock prices to help the buyer running the HFT system. I would expect day-to-day fluctuations in stock prices caused by this make no difference to companies in the long term. Unless, of course, it causes the stock to completely tank. Then the company will no longer be able to raise any money at all by issuing new stock.
In fact the stock market in general often has little to do with the actual value of the companies. I have never really understood this disconnect.
"Don't you ever miss the days when you used to be nostalgic?" -Loiosh
(Score: 0) by Anonymous Coward on Monday May 25 2015, @09:08AM
That doesn't relate to my reply, which is that there are all of these silly and arbitrary rules being placed, and all so the rich can get even more pieces of paper.
(Score: 1, Interesting) by Anonymous Coward on Sunday May 24 2015, @05:06PM
While I don't play the stock market perhaps it's almost like an auction. When you place an order you are almost bidding on a limited item. The more people that bid on it the higher the price of subsequent bids goes. So if you already own stock in something and then you place a bunch of orders that will cause the stock price to shoot up. If you time it right you can then sell the stock you own at a higher price and cancel your pending transactions before they complete. The stock market is supposed to attempt to time pending transactions bought and sold in such a way that makes this difficult but perhaps people can find ways around it.
(Score: 0) by Anonymous Coward on Sunday May 24 2015, @05:39PM
(Same poster)
Actually what you may try to do is sell a few stocks from one account, buy pending stocks from another account and time it so that the pending stocks inflate the market at the time that the stocks you own sell. Then you cancel the pending stocks. Like I said the stock market attempts to time pending transactions bought and sold in such a way as to make this difficult (and those rules sometimes change to adapt to new exploits) but people try to find ways around it. For instance, IIRC, to resist this type of behavior you can't just decide that you want to buy a particular stock at the current price right now. You must place an order and by the time the stock price that you will buy the stocks for has been determined it's already well past the time that you are allowed to cancel the transaction (place order for $100, lag, cancellation time expires, lag, stock price that you pay is determined. You get whatever you can get for $100). Similar rules apply for selling stock.
(Score: 2) by Justin Case on Sunday May 24 2015, @06:12PM
Take me through this real slow.
The current price is $100. I put a bid into the auction (enter a limit order) to buy if it drops to $99. Everybody else knows I have the right to cancel that order between now and the time the price drops. So they start frantically buying and drive the price up? Why? I didn't bid $102; if I had my order would have executed immediately at $100 and the completed transaction would be too late to cancel.
I'm announcing that I think the market is going to go down. Based on that everyone else freaks out and bids the price up? And how do I profit on that exactly?
(Score: 2) by Justin Case on Sunday May 24 2015, @06:57PM
Maybe this is it. You buy 1000 shares at $100 (investment $100,000). Then you announce to the world that you are going to buy a billion shares at $99, through a limit order you intend to cancel. Everybody goes "OMFG he must know something" so they stampede to copycat and bid it up to $105. You sell your 1000 shares (cash out $105,000, pocket $5000 gain).
First, this looks like it qualifies as taking advantage of stupid people, to which I say, well done, you earned your $5000 and more. Do it again until the idiots go broke and exit the market*, or wise up. You will have provided an educational service worth far more than your payoff.
* Protip: for this to work correctly, the taxpayers must not bail out the idiots.
Second, you put $100,000 at risk. You could have lost some or all of that. Will the gains outweigh the losses if you repeat this daily?
Third, what if the market actually did drop to $99? Then you've entered a contract to buy a billion shares. You can't, of course, so for you it is game over as you go bankrupt and get sued to oblivion. So you can't play this trick very often.
Again, I'm not seeing a long term winning strategy here. So how does it really work? Anybody know? Or are we just hating it because we don't understand it? I mean, I'm willing to get on board and throw some rotten eggs too. I just want to understand why we're doing so.
(Score: 2) by turgid on Sunday May 24 2015, @08:06PM
Someone I know does a lot of "investing" on the side (it's not his day job) frequently gambling thousands of dollars and generally making a profit. He told me he has some very sophisticated spread sheets that he did for modelling companies. He can tell when a company is a good buy.
Apparently there is this thing called "leverage" where you can borrow money to buy an investment and it works something like this: Suppose you think there's a great opportunity to buy some stock on the cheap and that it's likely to go up significantly (5-10%) in value, but you've only got, say $1000 to invest. You do a deal where someone will lend you, say $10000 to buy the stock. You then sell them at a profit, and pay a bit of interest on the "leverage." You've effectively made 10 times the profit you'd otherwise have made.
If a disaster happens and the price falls instead of rising, you're only liable for your $1000 i.e. the institution that lent you the leverage picks up the bill for the rest.
I refuse to engage in a battle of wits with an unarmed opponent [wikipedia.org].
(Score: 0) by Anonymous Coward on Sunday May 24 2015, @09:35PM
Generally when leverage is mentioned it is referring to a simple loan from whatever company you are trading through. In your example, if the $11,000 stocks went down to $6,000 you have lost $5,000 and have a $10,000 debt to pay back at a high interest rate. You effectively are borrowing money from a guy outside a casino because you believe a certain machine will be paying out for you in the very near future.
There are ways to reduce risk trading stocks, but leverage is not one of them.
(Score: 0) by Anonymous Coward on Monday May 25 2015, @04:40PM
"Then you announce to the world that you are going to buy a billion shares at $99, through a limit order you intend to cancel."
Well, obviously this may not be how you want to do it because something like this would be much more noticeable and harder to get away with. But what people probably do on a much smaller scale is they choose very small stocks to play with, one where much less money can have a relatively larger impact on prices. Such stocks are much easier to play with and it would be much more difficult to get noticed. For a multi-billion dollar corporation one may need billions of dollars to really affect the price and some average Joe Blow with no money isn't going to be able to make such a pending purchase in the first place yet alone be able to go unnoticed if they attempt to use billions of dollars they don't have to try and manipulate stock prices. But, yeah, you have the general idea.
(Score: 1) by dingus on Tuesday May 26 2015, @02:21PM
You're looking at this like it follows the rules of common sense. The stock market doesn't follow those rules; it follows the rules of game theory.
(Score: 3, Insightful) by bradley13 on Sunday May 24 2015, @06:25PM
I don't know the answer to your question, but I'm going to guess that the answer lies in the algorithms used by the banks and investment houses. Likely they are stupid, look at the pending volume of orders, and change their strategy accordingly.
Just exactly why it should be illegal to trick stupid software? That is a completely different question
As far as I am concerned, the solution to this entire group of problems is very simple: Stock markets fund themselves off of fees. Their fees should change, to be in two parts:
First: cancelling an order should be expensive. Orders should be placed with the intent to execute them. While cancellation may sometimes be necessary, it should be expensive.
Second: an inverse exponential function of how long you have held an asset. If you bought a stock or derivative and sell it within the hour, their fee should be utterly punitive, maybe even the total value of the asset. Sell something you've held for months or years, no fee at all.
Liquidity is overrated - extreme liquidity it nothing but an excuse for turning an investment vehicle into a casino. That really needs to change.
Everyone is somebody else's weirdo.
(Score: 3, Insightful) by Justin Case on Sunday May 24 2015, @06:39PM
> guess that the answer lies in the algorithms used by the banks and investment houses. Likely they are stupid, look at the pending volume of orders, and change their strategy accordingly.
That would make sense. I'm wondering if someone more knowledgeable than either of us can offer another explanation.
> Just exactly why it should be illegal to trick stupid software?
Indeed, there should be a reward for separating stupid (people, software, corporations) from their resources as quickly as possible, to minimize the damage they can do. That's why I said I want to understand how HFT works before I can make a moral evaluation.
Those who just say "somebody who isn't me has money, therefore they must be evil" has a ridiculously simple view of the world, IMHO.
(Score: 0) by Anonymous Coward on Sunday May 24 2015, @09:57PM
The problem WRT the stock market is that these people are gambling with other people's money. Your 401k? Their customers' money? That's what they're gambling with; if they win, they pocket all the profit, but if they lose, the gamblers don't lose a thing, but the people who's money they're using end up losing their entire retirement fund.
(Score: 2) by Fluffeh on Sunday May 24 2015, @11:06PM
Indeed, there should be a reward for separating stupid (people, software, corporations) from their resources as quickly as possible, to minimize the damage they can do.
The problem in itself is that it's the "stupid" people who end up footing the bill when the smart people muck it up. All those banks that were bailed out... that's taxpayer money. All those massive losses of investments... that's retirement plans. Sure, a few folks here and there who had a lot of money lost it too - but insignificant sums compared to the losses worn by the general population.
I agree with the sentiment in your comment for the most part, but not when punishing the minority also means punishing the vast majority.
(Score: 0) by Anonymous Coward on Monday May 25 2015, @06:38AM
Well said. However the thing with a casino is, the house always wins. And since here the biggest players make the house, the rules will never change to include your reasonable changes.
(Score: 0) by Anonymous Coward on Monday May 25 2015, @09:49AM
Read the book Flash Boys by Michael Lewis!