Trader blamed for flash crash

A British financial trader has been arrested on charges of triggering the 2010 "flash crash" a sharp, short-lived fall in the US markets that took place on 6 May 2010. Navinder Singh Sarao is accused of sending "spoof" orders to sell E-mini futures contracts (derivatives based on the value of the S&P 500 index).

Spoofing involves placing a large volume of orders at prices that are not intended to be executed with intention of creating the impression of a large volume of selling (or buying) pressure in the market. This can encourage other traders to sell (or buy), thereby potentially driving the market down (or up).

Heathrow-based Sarao was arrested at the request of the US Federal Bureau of Investigation. He has been charged with multiple counts of wire fraud, commodities fraud and market manipulation, with potential prison terms of ten to 25 years per charge.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

What the commentators said

Quite, said Bloomberg View's Matt Levine. "The markets were nervous and his spoof orders probably made them more nervous." But it seems unlikely that he "caused the whole crash".

The authorities have previously tried to blame the event on a small asset manager in Kansas. Now they seem to be abandoning that in favour of a "new one-guy-in-London theory". You'd be wise to remain sceptical of this claim as well.