US CFTC and DOJ is requesting extradition of UK resident.
Navinder Singh Sarao, a 37-year old UK citizen, was arrested on US wire fraud and commodities charges and market manipulation. They said he manipulated the e-mini market by creating the appearance of liquidity in the market by layering orders.
Nav Sarao is charged by US authorities with one count of wire fraud, ten counts of commodities fraud, 10 counts of commodities manipulation and one count of spoofing
The May 6, 2010 crash wiped out nearly $900 billion in market value in 20 minutes.
S&P 500 May 6, 2010
There is just no way you are going to convince me that one person and one algo is capable of doing that kind of damage.
The same year of the crash, the CFTC released a report.
"For more than five minutes starting at 2:44 p.m. in New York, its quotes in 1,665 securities were delayed by 5 to 20 seconds or more. Quotations in the same securities disseminated through its private feeds had an average delay of .008 second. As the result, 20-minute rout erased $862 billion from the value of U.S. shares, according to data compiled by Bloomberg.
The report stated that deliberate attempts by traders to overwhelm exchanges with orders played no role in the May 6 crash. The majority of activity that occurred on May 6 wasn't quote stuffing, it was quote withdrawals. A report further stated that the plunge was triggered by the sale of futures contracts on the Chicago Mercantile Exchange that set off a chain of selling that bled into stocks and exchange-traded funds.
While the study said selling was worsened by automated firms trading with one another, the report placed no emphasis on the practice that has come to be known as quote stuffing, in which investors allegedly seek an advantage by delaying data feeds
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At the time, fingers were pointed at Waddell & Reed Financial on reports they sold 75,000 e-mini contracts.
Listen to this stuff, he sounds like a patsy.
Here is the full release from the CFTC and a key portion:
Defendants modified a commonly used off-the-shelf trading platform to automatically simultaneously "layer" four to six exceptionally large sell orders into the visible E-mini S&P central limit order book (the Layering Algorithm), with each sell order one price level from the other. As the E-mini S&P futures price moved, the Layering Algorithm allegedly modified the price of the sell orders to ensure that they remained at least three or four price levels from the best asking price; thus, remaining visible to other traders, but staying safely away from the best asking price. Eventually, the vast majority of the Layering Algorithm orders were canceled without resulting in any transactions. According to the Complaint, between April 2010 and April 2015, Defendants utilized the Layering Algorithm on over 400 trading days.
The Complaint alleges that Defendants often cycled the Layering Algorithm on and off several times during a typical trading day to create large imbalances in the E-mini S&P visible order book to affect the prevailing E-mini S&P price. Defendants then allegedly traded in a manner designed to profit from this temporary artificial volatility. According to the Complaint, from April 2010 to present, Defendants have profited over $40 million, in total, from E-mini S&P trading.
As alleged in the Complaint, Defendants were exceptionally active in the E-mini S&P on May 6, 2010, commonly known as the Flash Crash Day. On the afternoon of that day, the E-mini S&P market price suffered a sharp decline, followed shortly thereafter by sharp declines in the prices of other major U.S. equities indices and individual equities. After a few minutes, markets quickly rebounded to near previous price levels. According to the Complaint, Defendants utilized the Layering Algorithm continuously, for over two hours, immediately prior to the precipitous drop in the E-mini S&P price, applying close to $200 million worth of persistent downward pressure on the E-mini S&P price. According to the Complaint, Defendants' manipulative activities contributed to an extreme E-mini S&P order book imbalance that contributed to market conditions that led to the Flash Crash.