Thursday, April 23, 2015

Accused "flashcrash" trader to fight extradition to United States

A British trader accused of triggering a "flash crash" on Wall Street five years ago is fighting extradition to the United States.

The 36-year-old man, who was arrested at his parent's home in West London, faced court briefly and is about to be released on US$7.5 million bail after a night behind bars.

Navinda Singh Sarao was arrested in the living room of his parent's home dressed in a tracksuit rather than the pinstripe fashion that many would associate with high powered market traders.

It is alleged that Sarao was responsible for a sudden crash in share valuations on May 6 2010 which saw the Dow Jones Industrial Average briefly plunge more than 1,000 points.

The crash temporarily wiped nearly a trillion dollars off sharemarket valuations.

The high speed trader made his first court appearance after the US Justice Department charged him with wire fraud, commodities fraud and market manipulation over several years.

Sarao is accused to using a complex automated program to "spoof" markets which saw him reap a profit of US$40 million.

The court heard that the "spoof" program generated large sell orders that pushed down prices which allowed Saroa to cancel trades to buy in at lower prices.

It is alleged that Sarao's activity on 6 May earned him a profit of US$750,000.

However, experts are divided on whether US regulators have the necessary proof to secure a conviction against Sarao.

Hain Bodek, a former trader with UBS and Goldman Sachs, became a "whistleblower" on irregularites caused by high speed trading.

But he told the BBC there is no firm agreement on what actually caused the "flashcrash" in 2010 and that prosecutors will need to come up with hard evidence.

"It's a very bold approach for the regulators. It would require that they provide some form of analylitics or some real concrete scientific justification," Mr Bodek said.

"And even with this latest action we still don't have a general agreement on the cause or the trigger of  the flash crash."

Navinda Sarao will remain on bail before he faces an extradition hearing in August but has indicated he plans to fight the action to place him on trial in the United States.

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