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How This Indian Trader Wiped Off $1 Trillion From US Market:Navinder Singh Sarao


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Navinder Sarao's case sparked intense debate within the financial community, with some viewing him as a scapegoat for systemic issues within the markets

FeatureEdited by Amit ChaturvediUpdated: February 15, 2024 4:03 pm IST
Navinder Singh Sarao: How This Indian Trader Wiped Off $1 Trillion From US Market

Navinder Singh Sarao at one of the court hearings.

 
 
 

The name Navinder Singh Sarao resonates with both intrigue and controversy in the world of finance. Born in the UK, Sarao was catapulted into the global spotlight in 2015 when he was arrested for his alleged role in the 2010 'Flash Crash', an event that sent shockwaves through the financial markets. According to the BBC, the 'Flash Crash' - in which the markets briefly plummeted in value - lasted less than an hour. But in that brief time, shares worth $1 trillion were wiped off.

The self-taught stock market trader caused the panic in US markets from a bedroom in his parents' home in Hounslow, West London, which earned him the sobriquet "Hound Of Hounslow" - a reference to the famous "Wolf of Wall Street" fraudster.

Who is Navinder Singh Sarao?

Sarao's journey into the world of trading began modestly. Operating from the bedroom in his parents' home, he honed his skills as a trader, specialising in futures markets. His unique approach to trading caught the attention of seasoned investors and garnered him a reputation as a skilled and enigmatic trader.

The BBC said that Sarao is highly intelligent, but has Asperger's syndrome, a developmental disorder that's part of the autism spectrum disorder.

How did he make $40 million?

Sarao alleged to have made the fortune through illegal trades from 2010-2014. Financial Times cited records from US Department of Justice (DoJ) to say that Sarao used computer algorithms to place fake orders. The specially adapted software allowed him to trade remotely on the Chicago Mercantile Index from London.

 

 

 

He bought and sold contracts that effectively speculated on the value of the top US companies. Sarao saw that some "high frequency traders" tried to make their own trades milliseconds before orders could be executed. So, he designed a software to exploit this provision, placing thousands of orders before quickly cancelling or changing them.

This practice - known as "spoofing" - allowed him to make genuine buy or sell orders at a profit as the price swiftly rose or fell.

The FT report said that Sarao admitted to entering more than 85 spoof orders on the day of the crash, which represented at different times of the day, more than 20 per cent of all sell orders.

What he was convicted of?

Sarao initially faced 22 charges, which carry a maximum sentence of 380 years. But prosecutors took account of his autism, time already served in jail and the help he provided to the US government.

Sarao agreed to pay the US government $12.8 million, the amount prosecutors said he earned from his illegal trading.

 

 

 

 
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Navinder Singh Sarao, famously known as the "Hound of Hounslow," made headlines by executing illegal trading strategies, contributing to the "Flash Crash" of 2010. Through spoofing, he manipulated market prices, leading to a temporary but massive drop in the US stock market, wiping off approximately $1 trillion in market value within minutes. Sarao's actions underscored the vulnerabilities of modern financial systems to manipulation and prompted regulatory scrutiny.

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