Bloomberg Businessweek May 18, 2020
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PHOTO: LUKE MACGREGOR/BLOOMBERG. DATA: COMPILED BY BLOOMBERG
OnMarch9,U.S.stockshadtheirbiggestone-
daypointdropeverastheeconomicfalloutfrom
thenovelcoronavirussankin.Withina weekthat
recordhadbeenbrokentwice,onlyfortheS&P 500
toregisteritsgreatestweeklygainindecadesin
April,aftertheFederalReserveintervenedbyslash-
inginterestratesandbuyingbonds.
Thisrattleofvolatilityarrives 10 yearsafter
anotherfamouslytumultuous episodein the
markets—theso-calledFlashCrashofMay6,2010,
when,withoutwarning,theS&P 500 plummeted
5%infourminutes,temporarilyerasing$1trillion.
Theincidentsparkeda governmentinvestigation
andledtoquestionsaboutwhethertheriseofhigh-
frequencytradingwashavinga destabilizingimpact
onthemarkets.Intheend,theU.S.Departmentof
Justicefocusedona differentculprit:a 36-year-old
daytradernamedNavinderSinghSaraowhooper-
atedoutofhisbedroominhisparents’suburban
semidetachedhouseontheoutskirtsofLondon.
Withnoties totheworldofhighfinance,
Saraoaccumulated$70millionbuyingandsell-
ingfuturesasif hewereplayinga computergame.
Thebulkofhiswinningscameduringperiodsof
extremevolatility.Healsomanipulatedthemar-
kets,accordingtotheU.S.government,creating
a computerprogramthatplacedthencanceled
hugevolumesoforderstodeceiveotherpartic-
ipantsaboutsupplyanddemand—abrand-new
offenseknownas“spoofing.”Authoritieswere
carefultoassertthatSarao’santicshadonlycon-
tributedtothecrash,essentiallybycreatingfalse
signals others reacted to, but that nuance was lost
in the ensuing press coverage.
In 2016, Sarao struck a plea deal with U.S. author-
ities, agreeing to tell the authorities everything he
knew in exchange for a more lenient sentence. The
information he provided on the dark arts of elec-
tronic trading proved so useful that the govern-
ment incorporated it into its detection software,
helping to lead to spoofing convictions for more
than a dozen traders from banks, hedge funds, and
high-frequency trading firms. In recognition of his
cooperation and a diagnosis of Asperger’s, Sarao
was spared jail in January, sentenced instead to
a year under house arrest—a month before the
His tutor
recalled
“a very
likable young
man, very
intelligent,”
who was
“full of fun”
● A new book reveals fresh
details about the man blamed
for helping cause the 2010
Flash Crash that erased
$1 trillion of value in minutes
The Trader ho
