Fastest market crash in under 5 minutes triggered by the real Wolf of Wall Street
Navinder Singh Sarao, a mathematical prodigy turned trader , a Cheeky school boy tuned to supposedly master criminal, contrived to have himself hunted down by the FBI for crashing the US Stock market, from a computer in his bedroom in his parental home under a flight path in drab London suburbia in working-class neighbourhood of Hounslow, West London.
This is the story of an extraordinary talented individual and his quixotic quest for money he didn’t even spend, but exposed the fragility of our entire financial system and on March 6, 2010, financial market around the world tumbled simultaneously without even a warning in the span of five minutes. He allegedly amassed $70 million from his childhood bedroom until the US government accused him of helped trigger an unprecedented market collapse.
Sarao, a preternaturally gifted trader who took on the tyranny of Wall Street and high-frequency traders, had left behind London’s trading arcades, working instead out of his childhood home as for years money poured in. But when the lightning-fast electronic traders infiltrated markets and started eating into his profits, Sarao, a scourge, built a system of his own to fight back which worked till 2015, until FBI arrived at his door.
Sarao’s actions led to him being sentenced earlier this year to a year of home incarceration and averted much longer spell in prison.
Bloomberg Journalist, Liam Vaughan’s book, Flash Crash, is an engaging history lesson on the evolution of modern trading and the conflicting demands it seeks to serve and its dislocation from any social purpose.
In April 2015, Sarao was hauled out of his parent’s house under arrest for his involvement in a head spinning crash in the US stocks in 2010 that caused the Dow Jones Industrial Average to fall further, in five minutes than it ever done before in its 114-year history.
The crash came soon after Sarao snapped up $900, 000 profit but stuffing the market with billions of dollars of fake orders. It got discovered only when he apparently switched off his computer, as his mum called him downstairs for dinner.
The incident stunned regulators, investors and traders around the world into taking high-speed automated trading seriously.
Sarao’s legal team revealed that he suffers from Asperger’s syndrome- a condition that leaves him blind to the broader consequences of his action and plainly too fragile for prison.
Skinny and badly dressed Sarao was arrested on charges befitting of a Bond villain, carrying a 380-year sentence, was greeted by scepticism and alarm by the media.
Thirty-six-year-old Sarao can crunch numbers and spot patterns that are beyond the rest of us.
Vaughan reveals how Sarao once found himself on the other side of trades executed by Societe Generale’s notorious rogue trader Jerome Kerviel. The Frenchman’s loss was, in part, Sarao’s gain after a shrewd piece of pattern spotting and patience by Sarao that helped propel him in to the big time, in his community of independent traders. It is when the high-speed traders who were stuffing up his slow-moving, point-and-click trading style, and fatefully decided that if he could not beat them he would join them.
As he was not involved in the market at the time of the crash, he ends up helping regulators and prosecutors to understand this world better than over before. Although he was firing spoof orders, he was certainly not the only spoofer in town. He pleaded guilty to firing spoof orders and to fraud
Flash Crash leaves striking reminder that such cases could happen again without constant scrutiny around those who gets their hands on weaponary.
Flash Crash: A Trading Savant, a Global Manhunt and the Most Mysterious Market Crash in History By Liam Vaughan, Doubleday $26.95/ William Collins £20, 272 pages.