Remember when the SEC, and specifically the agency's former lead HFT investigator Greg Berman, blamed the entire May 2010 Flash Crash on Waddell & Reed (and not HFT)? Well, it is time to change the entire narrative once again, in yet another attempt to 'restore" confidence in a rigged and manipulated market. The scapegoat? Navinder Singh Sarao.
- FUTURES TRADER ARRESTED FOR ALLEGED ROLE IN 2010 FLASH CRASH
- FUTURES TRADER CHARGED WITH ILLEGALLY MANIPULATING STOCK MKT
- SARAO HAS BEEN CHARGED WITH COMMODITIES, WIRE FRAUD: GOELMAN
- SARAO WAS ARRESTED AT HIS HOME IN LONDON TODAY, GOELMAN SAYS
- CFTC FILES CIVIL CASE AGAINST NAVINDER SINGH SARAO
But wait, it gets better:
- SARAO REAPED $40 MILLION IN PROFITS, CFTC'S GOELMAN SAYS
- SARAO SPOOFED E-MINI FUTURES FROM 2010 THROUGH 2014: GOELMAN
And the punchline:
- GOELMAN: SARAO WAS `SIGNIFICANTLY RESPONSIBLE' FOR FLASH CRASH
From the report:
So, uh, 5 years later we find that the SEC was only kidding about that whole Waddell & Reed farce, and that this time it actually has the right perpetrator. Or is it simply that one can't arrest an algo or a vacuum tube.
In any event, the market is now unrigged and unmanipulated dear retail investors, and the water is warm. Pretty please, because the banks, HFTs and hedge funds are desperate to sell some of the trillions in stock they have bought on the way up and without you there is nobody to sell to.
In other news, Jon Corzine's Vapor Capital Mismanagement has broken off its merger with Nav Sarao Futures Limited PLC.
Also please ignore the "fact" that we now trade in a world in which one (1) person can break the entire market.
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Also, please ignore, or best of all forget, that a year ago the SEC launched an investigation into whether Virtu and every other major HFT firm was engaged in layering and spoofing:
The U.S. Securities and Exchange Commission has been seeking information on 10 registered broker dealers as part of an ongoing investigation into high-frequency trading strategies, according to an internal SEC document reviewed by Reuters.
The regulator told its staff in late March that it was interested in seeing any tips, complaints, or referrals that they receive concerning the brokers and high frequency trading.
The firms listed are Allston Trading LLC; Hudson River Trading LLC; Jump Trading LLC; Latour Trading LLC, which is an affiliate of Tower Trading; Merrill Lynch, Pierce, Fenner & Smith, owned by Bank of America Group; Octeg LLC, which has been merged into a unit of KCG Holdings Inc; Tradebot Systems Inc; Two Sigma Investments LLC; Two Sigma Securities LLC; and Virtu Financial.
They are all some of the largest trading firms in the U.S. Allston and Jump are both based in Chicago. Hudson River, Latour, Merrill, Two Sigma, and Virtu are headquartered in New York. KCG is in Jersey City, New Jersey, and Tradebot is based in Kansas City, Missouri.
Jump, Latour, Bank of America, Hudson River, Tradebot and KCG declined to comment. The other firms did not immediately respond to a request for comment.
Their number and the open-ended quest for information shows that the SEC is casting a wide net as it looks to unearth wrongdoing in the marketplace. It is not known if the SEC found any violations of securities laws at any of the firms. The SEC declined to comment.
A number of government agencies, including the SEC, New York State Attorney General Eric Schneiderman’s office, the Commodity Futures Trading Commission and the Federal Bureau of Investigation have said they had active probes into high-speed and automated trading.
The SEC has been seeking evidence of abuse of order types, as well as traditional forms of abusive trading like "layering" or "spoofing" and other issues relating to high-frequency trading that might be violations of the law, SEC Director of Enforcement Andrew Ceresney told Reuters in May (reut.rs/1kwSqF5).
Spoofing and layering are tactics where traders places orders that they cancel before they are executed to create the false impression of demand, aiming to trick others into buying or selling a stock at the artificial price.
High frequency trading firms account for more than half of all trades in the U.S. stock market, and are often seen as modern-day market makers. They make it easier for investors to trade by stepping in and taking the other sides of many orders and profiting off of trading spreads.
Scrutiny around high-frequency trading intensified following the March 31 release of best-selling author Michael Lewis' book, "Flash Boys: A Wall Street Revolt." In the book, Lewis contends that high-frequency traders have rigged the stock market, profiting from speeds unavailable to others.
We are confident these firms did nothing at all wrong.
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All joking aside, at least the CFTC finally figured out that it at least has to blame spoofing, layering, momentum ignition and every other aspect of HFT market manipulation on what Sarao was "doing." In fact, allegedly Sarao was doing this until a few weeks back, which suggests that not only one person crashed the market, but one person was responsible for manipulating it all the way to where it is now.
And yes, we are still laughing, because for the CFTC and DOJ to have the gall to actually bring up this charge against one person, indicates just how broken things really must be.
Then again, it was inevitable: just like the housing crash was blamed on 28-year-old Goldmanite Fabrice Tourre, so the Flash Crash had to be blamed on one person too.
One thing is certain though: when the entire rigged, fraudulent, manipulated market crashes and burns one final time, it will all be the HFTs' fault (as we have been saying since 2013), and not the central banks and their $22 trillion (more than the GDP of the US and Japan) in assets.
And who can't wait for an algo perp walk.
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Here is the evil masterming behind all that was broken and rigged in the S&P for the past 5 years:
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here is the entire farce, straight from the CFTC:
CFTC Charges U.K. Resident Navinder Singh Sarao and His Company Nav Sarao Futures Limited PLC with Price Manipulation and Spoofing
The CFTC Complaint Alleges that Defendants’ Manipulative Conduct Contributed to the Market Conditions that Led to the May 6, 2010 Flash Crash
Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced the unsealing of a civil enforcement action in the U.S. District Court for the Northern District of Illinois against Nav Sarao Futures Limited PLC (Sarao Futures) and Navinder Singh Sarao (Sarao) (collectively, Defendants). The CFTC Complaint charges the Defendants with unlawfully manipulating, attempting to manipulate, and spoofing — all with regard to the E-mini S&P 500 near month futures contract (E-mini S&P). The Complaint had been filed under seal on April 17, 2015 and kept sealed until today’s arrest of Sarao by British authorities acting at the request of the U.S. Department of Justice (DOJ). After the arrest, the DOJ unsealed its own criminal Complaint charging Sarao with substantively the same misconduct.
The Standard & Poor’s 500 Index is an index of 500 stocks designed to be a leading indicator of U.S. equities. The E-mini S&P 500 is a stock market index futures contract based on the Standard & Poor’s 500 Index and is one of the most popular and liquid equity index futures contracts in the world. The contract is traded only at the Chicago Mercantile Exchange (CME).
According to the Complaint, for over five years and continuing as recently as at least April 6, 2015, Defendants have engaged in a massive effort to manipulate the price of the E-mini S&P by utilizing a variety of exceptionally large, aggressive, and persistent spoofing tactics. In particular, according to the Complaint, in or about June 2009, 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.
The Complaint further alleges that Defendants engaged in a variety of other manual spoofing techniques whereby Defendants allegedly would place and quickly cancel large orders with no intention of the orders resulting in transactions. At times, according to the Complaint, this manual spoofing was used to exacerbate the price impact of the Layering Algorithm.
CFTC Director of Enforcement Aitan Goelman commented: “Protecting the integrity and stability of the U.S. futures markets is critical to ensuring a properly functioning financial system. Today’s actions make clear that the CFTC, working with its partners on the criminal side, will find and prosecute manipulators of U.S. futures markets wherever they may be.”
In its ongoing litigation, the CFTC is seeking permanent injunctive relief, disgorgement, civil monetary penalties, trading suspensions or bans, and payment of costs and fees.
As noted above, the U.S. Department of Justice filed a related criminal action charging Sarao with manipulation, attempted manipulation, spoofing, and wire fraud on February 11, 2015, in the U.S. District Court for the Northern District of Illinois. In conjunction with that action, the Federal Bureau of Investigation (FBI), with the assistance of Scotland Yard and the U.K.’s Financial Conduct Authority (FCA), took Sarao into custody today, at his residence in London. Sarao awaits extradition to the United States on these charges.
Given Defendants’ ongoing unlawful conduct and the potential for dissipation of Defendants’ ill-gotten gains, on April 17, 2015, U.S. District Judge Andrea R. Wood issued an Order freezing and preserving assets under Defendants’ control and prohibiting them from destroying documents or denying CFTC staff access to their books and records. The Court has scheduled a hearing for May 1, 2015, on the CFTC’s motion for a preliminary injunction.
The CFTC thanks and acknowledges the assistance of the CME, the U.S. Department of Justice, the FBI, the FCA, Scotland Yard, and the Securities and Exchange Commission.
CFTC Division of Enforcement staff members responsible for this matter are Jeff Le Riche, Jo Mettenburg, Jenny Chapin, Jessica Harris, Allison Sizemore, Carlin Metzger, Elizabeth Padgett, Mary Lutz, Jeri Cobb, Jordon Grimm, and Charles Marvine.
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The full "charge"