Mr Sarao already spent four months in the UK's Wandsworth Prison after his 2015 arrest. [4], In May 2014, a CFTC report concluded that high-frequency traders "did not cause the Flash Crash, but contributed to it by demanding immediacy ahead of other market participants". with somewhere in the region of $200bn worth of trades each day. Navinder Singh Sarao was on Tuesday arrested in London for allegedly causing a "flash crash" in the US in 2010. Was The Market Mayhem A Mistake? The May 6, 2010 flash crash,[1][2][3] also known as the crash of 2:45 or simply the flash crash, was a United States trillion-dollar[4] flash crash (a type of stock market crash) which started at 2:32 p.m. EDT and lasted for approximately 36 minutes. cookies Navinder Singh Sarao had helped spark a trillion-dollar market crash. Journal of Financial Markets, forthcoming. Benchmarks . [69], During extradition proceedings he was represented by Richard Egan[70] of Tuckers Solicitors. [63], In April 2015, Navinder Singh Sarao, an autistic[64][65] London-based point-and-click trader,[66] was arrested for his alleged role in the flash crash. The drop quickly rippled into other financial markets in the United States but also around the world. Two years out of school, he landed a job at a low-rent financial firm, located above a supermarket, that basically rented desks to wannabe traders and took a cut of their profits. "I have made the majority of my net worth in I would say no more than 20 days trading, that's how I . [27] These extreme prices also resulted from "market internalizers",[46][47][48] firms that usually trade with customer orders from their own inventory instead of sending those orders to exchanges, "routing 'most, if not all,' retail orders to the public marketsa flood of unusual selling pressure that sucked up more dwindling liquidity". Nifty 146.95. His attorney, Roger Burlingame, told me that the four months Mr Sarao spent at Wandsworth prison were probably the toughest thing he'd ever faced. Testimony Concerning the Severe Market Disruption on May 6, 2010, Six-month test period for US trading curbs-sources, Rules to Limit Stock Trading Amid Market Volatility, CNBC.com NYSE Says Circuit Breaker Will Be Finished Next Week, "Washington Post Co. stock first to trigger SEC's new circuit breakers", "SEC Approves Rules Expanding Stock-by-Stock Circuit Breakers and Clarifying Process for Breaking Erroneous Trades", "SEC Approves New Rule Requiring Consolidated Audit Trail to Monitor and Analyze Trading Activity", "The Fear Index by Robert Harris review", "Dev Patel to Star in 'Flash Crash' for New Regency and See-Saw (Exclusive)", "The Wild $50M Ride of the Flash Crash Trader", Preliminary Findings Regarding the Market Events of May 6, 2010, Findings Regarding the Market Events of May 6, 2010, The Microstructure of the Flash Crash: Flow Toxicity, Liquidity Crashes and the Probability of Informed Trading, The Flash Crash: The Impact of High Frequency Trading on an Electronic Market, Regulatory Issues Raised by the Impact of Technological Changes on Market Integrity and Efficiency, An Agent-Based Model of the Flash Crash of May 6, 2010, with Policy Implications, 17 CFR 242.606 - Disclosure of order routing information, SEC FAQs re Reg NMS Rule 610 and 611 - April 4, 2008 Update, Reg NMS Marketing Fact Sheet, from Nasdaq, Reg NMS - Securities Lawyer's Deskbook by The University of Cincinnati College of Law, Office of Federal Housing Enterprise Oversight, ChinaJapanSouth Korea trilateral summit, DoddFrank Wall Street Reform and Consumer Protection Act, Emergency Economic Stabilization Act of 2008, Term Asset-Backed Securities Loan Facility, American Recovery and Reinvestment Act of 2009, Fraud Enforcement and Recovery Act of 2009, Housing and Economic Recovery Act of 2008, National fiscal policy response to the Great Recession, List of banks acquired or bankrupted during the Great Recession, Effects of the Great Recession on museums, Acquired or bankrupt banks in the late 2000s financial crisis, Federal takeover of Fannie Mae and Freddie Mac, Homeowners Affordability and Stability Plan, PublicPrivate Investment Program for Legacy Assets, 2009 Supervisory Capital Assessment Program, https://en.wikipedia.org/w/index.php?title=2010_flash_crash&oldid=1142073841, History of stock exchanges in the United States, Short description is different from Wikidata, Articles with unsourced statements from September 2013, Creative Commons Attribution-ShareAlike License 3.0, This page was last edited on 28 February 2023, at 10:40. [] It is widely believed that the "sell program" refers to the algo selling the W&R contracts. Several plausible theories were put forward to explain the plunge. By the first weekend, regulators had discounted the possibility of trader error and focused on automated trades conducted on exchanges other than the NYSE. Both the U.S. Commodity Futures Trading Commission (CFTC) and the Department of Justice, in separate criminal and civil enforcement actions, brought charges of market manipulation and spoofing against Nav Sarao Futures Limited PLC (Sarao Futures) and Navinder Singh Sarao (Sarao) based on . Flash Crash the trading savant who crashed the US stock market. Navinder Singh Sarao, the British trader blamed for helping cause the 2010 Flash Crash from his bedroom, should serve no additional jail time, US authorities said in a recommendation before his . After several years of growing tensions, the potential for a reset under Australia's new Labor government is in question as trade sanctions remain and diplomatic disputes persist. A . On Wall Street, innovation never stops, Vaughan says. 8-13, Spring 2011; Available at SSRN: Easley, David and Lopez de Prado, Marcos and O'Hara, Maureen, Flow Toxicity and Volatility in a High Frequency World. [90], In a 2011 article that appeared on the Wall Street Journal on the eve of the anniversary of the 2010 "flash crash", it was reported that high-frequency traders were then less active in the stock market. Kiran Randhawa. That means that none of the 6,438 trades were executed by hitting a bid. [16] This rule was designed to give investors the best possible price when dealing in stocks, even if that price was not on the exchange that received the order. Hounslow in west London, from where US authorities allege Navinder Sarao caused the market to crash, Analysis by BBC Business reporter Ramzan Karmali, according to a Bloomberg reporter who was in the courtroom, Navinder Sarao: The man accused of causing the US market to crash, Harry: I always felt different to rest of family, US-made cheese can be called 'gruyere' - court, The children left behind in Cuba's exodus, AOC under investigation for Met Gala dress, Canadian grandma helps police snag phone scammer. The orders amounted to about $200 million worth of bets that the market . [11] Spoofing, layering, and front running are now banned. The sentence means Sarao will have served no prison time beyond the four months he spent in UK prison in 2015 before his release on bail. Latest Update: On January 28, 2020, defendant Sarao was sentenced to time served followed by one year of supervised release, with one year of home confinement as a condition of release. When he cancelled or changed his bids, he was able to profit. US Department of Justice (DoJ) lawyers called Sarao who has been diagnosed with Aspergers syndrome, a form of autism a rare, even unique case and individual. Nav was an irresistible character, and his was a really enticing human story, says Liam Vaughan, a business journalist and author of the recent book Flash Crash: A Trading Savant, a Global Manhunt, and the Most Mysterious Market Crash in History (Doubleday). He was arrested in 2015 for . Navinder Sarao in London on 23 March 2016. Recent research on dynamical complex networks published in Nature Physics (2013) suggests that the 2010 Flash Crash may be an example of the "avoided transition" phenomenon in network systems with critical behavior. Liam Vaughan's account of maths prodigy Navinder Sarao is a cautionary tale on modern finance. [ 4]:1 O S&P 500, Dow Jones Industrial Average e o Nasdaq . 34-50870; File No. document.getElementById( "ak_js_1" ).setAttribute( "value", ( new Date() ).getTime() ); Thanks for contacting us. How the 'Hound of Hounslow' helped trigger a $1tn crash, Street fighting in Bakhmut but Russia not in control, Saving Private Ryan actor Tom Sizemore dies at 61, Alex Murdaugh's legal troubles are far from over, The children left behind in Cuba's mass exodus, Xi Jinping's power grab - and why it matters, Snow, Fire and Lights: Photos of the Week. He lived with his parents, wore a choppy bowl cut and, instead of three-piece suits, he favored laddish track pants. Certainly, Saraos path to riches was unusual. According to Schapiro:[85]. His forthcoming book, Flash Crash (William Collins, Doubleday, 2020), tells the remarkable real-life story of Navinder Singh Sarao, a trading savant who made $70 million from nothing from his childhood bedroom - until the US government accused him of helping cause one of the most dramatic market crashes in history. Ben Morgan. [5]:3 A CFTC 2014 report described it as one of the most turbulent periods in the history of financial markets. Instead of greed, the trader seems to have been motivated by viewing trading through the prism of his autism, which was described as both a disability and a talent. David Gardner. June 27, 2020 12:04pm. Mr Burlingame said Judge Kendall had considered Mr Sarao's crimes in the "proper context", which had included complaining to market officials about spoofing by other traders. Criminal Charges: On November 9, 2016, Navinder Singh Sarao, 41, of Hounslow, United Kingdom . [44][25], The SEC and CFTC joint 2010 report itself says that "May 6 started as an unusually turbulent day for the markets" and that by the early afternoon "broadly negative market sentiment was already affecting an increase in the price volatility of some individual securities". [15]:641 The Reg NMS, promulgated and described by the United States Securities and Exchange Commission, was intended to assure that investors received the best price executions for their orders by encouraging competition in the marketplace, created attractive new opportunities for high-frequency-traders. [88] On June 16, 2010, trading in the Washington Post Company's shares were halted for five minutes after it became the first stock to trigger the new circuit breakers. 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According to Bloomberg, the VPIN metric is the subject of a pending patent application filed by the paper's three authors, Maureen O'Hara and David Easley of Cornell University, and Marcos Lopez de Prado, of Tudor Investment Corporation.[60]. The mystery over the May 6, 2010 Flash Crash took a turn on Tuesday when the Department of Justice said it arrested a little known U.K.-based trader, Navinder Singh Sarao of Sarao Futures, for . In that short period of time, sell-side pressure in the E-Mini was partly alleviated and buy-side interest increased. 2, pp. 0 references. The prevailing market sentiment was evident well before these orders were placed, and the orders, as well as the manner in which they were entered, were both legitimate and consistent with market practices. He liked that he was getting one over on his opponents.. Jonathan Prynn Business Editor @JonPrynn. Navinder Singh Sarao, who has been dubbed the "Hound of Hounslow", used his ability to spot numerical patterns in split seconds to influence the market, making himself more than 9 million ($12 . The following year, in the middle of a trial in Chicago, prosecutors dropped charges against a computer programmer who developed the spoofing tool used by Navinder Singh Sarao, a key figure in the 2010 stock market Flash Crash that briefly wiped almost $1 trillion from the value of U.S. equities. ""201056229. The 37-year-old British stock market trader of . Most prominent of all, the CME issued within 24 hours a rare press release in which it argued against the SEC/CFTC explanation:[49]. Updated May 6, 2015 7:33 pm ET. [27] As computerized high-frequency traders exited the stock market, the resulting lack of liquidity "caused shares of some prominent companies like Procter & Gamble and Accenture to trade down as low as a penny or as high as $100,000". [52] It was reported in 2011 that one hour before its collapse in 2010, the stock market registered the highest reading of "toxic order imbalance" in previous history. The five stocks were EOG Resources, Genuine Parts, Harley Davidson, Ryder System and Zimmer Holdings. "[91], In July 2012, the SEC launched an initiative to create a new market surveillance tool known as the Consolidated Audit Trail (CAT). [13]:1 At the time of the flash crash, in May 2010, high-frequency traders were taking advantage of unintended consequences of the consolidation of the U.S. financial regulations into Regulation NMS,[4][14] designed to modernize and strengthen the United States National Market System for equity securities. Taking nearly five months to analyze the wildest ever five minutes of market data is unacceptable. These hedging orders were entered in relatively small quantities and in a manner designed to dynamically adapt to market liquidity by participating in a target percentage of 9% of the volume executed in the market. Adani Ent. He has also forfeited about $7.6m (5.8m) in illegal gains. T. . Government prosecutors and defense lawyers described the 41-year-old Navinder Singh Sarao as autistic in memos filed before sentencing in Chicago federal court. Navinder Sarao didn't . Cocoa plunged $450 to a low of $3,217 a metric ton before rebounding quickly. [2] NASDAQ's timeline indicates that NYSE Arca may have played an early role and that the Chicago Board Options Exchange sent a message saying that NYSE Arca was "out of NBBO" (National best bid and offer). 'We're incredibly grateful', says Navinder Singh Sarao's lawyer, "We're incredibly grateful," Mr Sarao's attorney Roger Burlingame told the BBC. [11] These orders amounting to about "$200 million worth of bets that the market would fall" were "replaced or modified 19,000 times" before they were cancelled. He is overjoyed to put this behind him, go home, and move on with his life., Original reporting and incisive analysis, direct from the Guardian every morning. Here's how you know The U.S. dollar tumbled against the yen on March 16, 2011, falling 5% in minutes, one of its biggest moves ever. Companies House officer ID. Sarao was more concerned with the rise of high-frequency trading, a method of buying and selling that used powerful computers and algorithms to execute trades in fractions of seconds. Futures and options markets are hedging and risk transfer markets. There, hed start earning tens of millions trading e-mini futures, a contract that tracks the S&P 500. NKCR AUT ID. Phone. London trader Navinder Sarao's "Robin Hood" maneuvers triggered a 9 percent descent in the Dow on May 6, 2010. [43], A few hours after the release of the 104-page SEC/CFTC 2010 report, a number of critics stated that blaming a single order (from Waddell & Reed) for triggering the event was disingenuous. Navinder Singh Sarao, who worked out of his house in Hounslow, U.K., was arrested in the U.K. and the U.S. government has requested Sarao's extradition, charging him with fraud, commodities . [54][55][56] In particular, in 2011 Andersen and Bondarenko conducted a comprehensive investigation of the two main versions of VPIN used by its creators, one based on the standard tick-rule (or TR-VPIN)[52][57][58] and the other based on Bulk Volume Classification (or BVC-VPIN). I think that he was a gamer and, for him, markets were honestly the ultimate form of game, Vaughan says. [67][68] In August 2015, Sarao was released on a 50,000 bail with a full extradition hearing scheduled for September with the US Department of Justice. What had they just witnessed? Navinder Singh Sarao made $70 million buying and selling futures from his suburban London bedroom before the FBI showed up to arrest him for helping cause a $1 trillion market crash. Among the charges included was the use of spoofing algorithms; just prior to the flash crash, he placed orders for thousands of E-mini S&P 500 stock index futures contracts which he planned on cancelling later. The role of human market makers, who match buyers and sellers and provide liquidity to the market, was more and more played by computer programs. With a coronavirus lockdown shortly ensuing, Navinder's timing was impeccable! [9] Temporarily, $1 trillion in market value disappeared. Maybe Not. analyse how our Sites are used. ", "Trades Dumped on Exchanges Blamed for Intensifying May 6 Crash", http://investor.cmegroup.com/investor-relations/releasedetail.cfm?ReleaseID=513388, http://www.nanex.net/FlashCrashFinal/FlashCrashAnalysis_WR_Update.html, "Spontaneous recovery in dynamical networks", http://www.nature.com/nphys/journal/v10/n1/extref/nphys2819-s1.pdf, "Navinder Singh Sarao: The 'flash crash' trader who fell foul of Washington", "Autistic futures trader who triggered crash spared prison", "The trader blamed for the 'flash crash' tried to blow the whistle on other traders", "UK speed trader arrested over role in 2010 'flash crash', "Futures Trader Charged with Illegally Manipulating Stock Market, Contributing to the May 2010 Market 'Flash Crash', "British Trader Charged in 'Flash Crash' Released After Bail Reduction", "Documents show flash crash trader's frenetic business dealings", "Navinder Singh Sarao: reclusive trader or criminal mastermind? When he asked how, the classmate replied: Trading.. The cheating has just become more sophisticated., The Dow Jones dramatic 9 percent dip on May 6, 2010. During that period, the participant hedging its portfolio represented less than 5% of the total volume of sales in the market. The S&P shed 5 percent of its value in just four minutes. The sentence was relatively lenient, as a result of prosecutors' emphasis on how much Sarao had cooperated with them, that he was not motivated by greed and his diagnosis of Asperger syndrome.[74][75][76][77]. Five years after the trader was arrested in his parents' suburban London home for manipulating markets, the 41-year-old was ordered by a . Then on May 6, 2010, Sarao logged on from his bedroom and began furiously trading, attempting to capitalize on the volatility still roiling the markets after the 2008 crisis. Flash Crash de 2010. Over a period of two hours starting in the early afternoon New York time, when the Dow was down by more than 300 points, Sarao allegedly traded more than 62,000 E-mini contracts worth $3.5 billion . Add this topic to your myFT Digest for news straight to your inbox, Liam Vaughans account of maths prodigy Navinder Sarao is a cautionary tale on modern finance, Spoofing by Navinder Singh Sarao from London blamed for 2010 market chaos, Navinder Singh Saraos extraordinary co-operation cited ahead of sentencing, Briton in spoofing case co-operates with prosecutors in plea deal, Rather than relying on law, redesign market structure for machine-dominated trading, DoJ hails extradition and conviction of Briton in fight against market manipulation, British trader faces 22 charges, including wire fraud and commodities manipulation, Michael Coscia made illegal profits by flooding futures markets with small orders and cancelling them, Algorithms have been developed that can spot incidences of market manipulation, Judge Purdey rules that the traders alleged conduct could constitute a criminal offence in the UK and US, Proscutors allege trader contributed to the 2010 flash crash, UK court told that futures trader used Chicago market, Academic questions how one man could cause such severe market turmoil, Challenge to focus on claims of scapegoating and potential sentence of 380 years if convicted in US, ICAP, BGC, Tullett and GFI subpoenaed in new trading investigation, Sarao defence calls on top academic to bolster claim that cancelling orders was commonplace, Civil charges levelled against Chicago-based proprietary trading firm and co-founder Oystacher, Disruptive dealing can result in a severe penalty as regulators begin to catch up, Russian far-right fighter claims border stunt exposes Putins weakness, Something is boiling: Turkish football fans tackle Erdoan, Three-day weekends and more time for love: Chinas elite dream up policies for Xi, Germany and Italy stall EU ban on combustion engines, Feds Daly says US rates likely to be higher for longer, Saudi owner of Londons most expensive house sued over alleged unpaid private jet bills, Why the Jeffrey Epstein scandal continues to haunt JPMorgan and Barclays, US electric vehicle batteries poised for new lithium iron age. Sarao and his company, Nav Sarao Futures Limited, allegedly made more than $40 million in profit from trading from 2009 to 2015. This Supreme Court Case Could Redefine Crime, YellowstoneBackers Wanted to Cash OutThen the Streaming Bubble Burst, How Countries Leading on Early Years of Child Care Get It Right, Female Execs Are Exhausted, Frustrated and Heading for the Exits, More Iranian Schoolgirls Sickened in Suspected Poisoning Wave, No Major Offer Expected on Childcare in UK Budget, Oil Investors Get $128 Billion Handout as Doubts Grow About Fossil Fuels, Climate Change Is Launching a MutantSeed Space Race, This Former Factory Is Now New Taipeis Edgiest Project, What Do You Want to See in a Covid Memorial? Friday 05 June 2020 1:21 pm . to give about $17 million to Garcia and his companyby far his biggest investment and a substantial chunk of his net . January 28 2020 . Sarao was released on bail, banned from trading and placed under the care of his father. Can Shell close the valuation gap with US rivals? A British trader who was accused of helping to cause the 2010 Flash Crash, which temporarily cut $1 trillion in stock market value, was sentenced in the US on Tuesday to one year of home incarceration in his parent's house. However, he seemed to care little for the money maintaining an extremely frugal existence revolving around a childlike bedroom that includes multiple stuffed animals in his parents home in Hounslow, travelling to work late so that he could buy off-peak tickets and using coupons to buy food from McDonalds. The story of the British day trader charged with triggering a trillion-dollar flash crash that caused havoc on Wall Street in 2010 ended where it began on Tuesday with a judge sentencing him to one year of home incarceration at his parents house. 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Bloomberg via Getty Images. 200.45. . In 1998, while attending Brunel University London, Sarao noticed that one of his housemates always had money. Investors.com", "Accenture's Flash Crash: What's an "Intermarket Sweep Order", "P&G error started rout but money managers expect "slow but upwards equity markets to continue" - Financial Post", "Chicago Sun-Times Chicago: News: Politics: Things To Do: Sports", "SEC's Schapiro: Here's My Timeline of the Flash Crash", "What went wrong with US futures on Thursday? Available at SSRN: Andersen, Torben G. and Bondarenko, Oleg, Reflecting on the VPIN Dispute. As they withdraw, liquidity disappears, which increases even more the concentration of toxic flow in the overall volume, which triggers a feedback mechanism that forces even more market makers out. [93], These volumes of trading activity in 2011, to some degree, were regarded as more natural levels than during the financial crisis and its aftermath. As prices in the futures market fell, there was a spillover into the equities markets. When trader Navinder Singh Sarao was arrested last month, U.S. prosecutors said he violated market-manipulation laws and contributed to the May 2010 meltdown . According to this paper, "order flow toxicity" can be measured as the probability that informed traders (e.g., hedge funds) adversely select uninformed traders (e.g., market makers). According to the US government, British day trader Navinder Singh Sarao had made tens of millions of dollars using an illegal practice called spoofing. Accenture for a Penny: MarketBeats Investigation Continues! A few years after he joined the office, Sarao was regularly pulling down $25,000 on a good day. Despite his wealth, however, Sarao didnt live lavishly. Navinder Sarao in London in 2016. The other aspect which many people find hard to believe is that Mr Sarao has no money left from his trading profits. But in 2015, the online futures trader whod earned tens of millions of dollars from his bedroom was arrested and accused of contributing to a troubling 2010 market crash that momentarily wiped out trillions of dollars. A U.S. judge on Tuesday, Jan. 28, 2020, sentenced Navinder Singh Sarao, a socially awkward math whiz-turned-futures trader who helped trigger a U.S. stock market "flash crash" from his parents' suburban London home to time served and a year's home confinement, sparing him imprisonment after prosecutors praised his cooperation and said his . A gifted mathematician with a photographic memory and a passion for gaming, Sarao mastered a frenetic form of trading known as 'scalping,' going on to earn . ntk20211104532. Updated. The Dow Jones Industrial Average on May 6, 2010 Source-Wikipedia. He told Kendall that he had found God and would never do anything illegal again. Navinder Singh Sarao, the British trader accused of contributing to the 2010 stock-market "flash crash," won't serve any more time in jail, a federal judge . [84] A better measure of the inadequacy of the current mlange of IT antiquities is that the SEC/CFTC report on the May 6 crash was released on September 30, 2010. '"[25] The combined sales by the large seller and high-frequency firms quickly drove "the E-Mini price down 3% in just four minutes".[25]. "Bloomberg Opinion" columnists offer their opinions on issues in the news. A recess was called to discuss the situation and the judge was satisfied Sarao would only be allowed to leave the house in a handful of circumstances. Others have since been arrested for similar crimes, but the financial world is hardly free of manipulation. A study of VPIN[61] by scientists from the Lawrence Berkeley National Laboratory cited the 2011 conclusions of Easley, Lopez de Prado and O'Hara for VPIN on S&P 500 futures[52] but provided no independent confirmation for the claim that VPIN reached its historical high one hour before the crash: The Chief Economist of the Commodity Futures Trading Commission and several academic economists published a working paper containing a review and empirical analysis of trade data from the Flash Crash. [12], On May 6, 2010, U.S. stock markets opened and the Dow was down, and trended that way for most of the day on worries about the debt crisis in Greece. The combined selling pressure from the sell algorithm, HFTs, and other traders drove the price of the E-Mini S&P 500 down approximately 3% in just four minutes from the beginning of 2:41 p.m. through the end of 2:44 p.m. During this same time cross-market arbitrageurs who did buy the E-Mini S&P 500, simultaneously sold equivalent amounts in the equities markets, driving the price of SPY (an exchange-traded fund which represents the S&P 500 index) also down approximately 3%. Sarao shot into the public eye aged 36 in April 2015, when he was hauled out of his baffled parents' house in Hounslow under arrest for his involvement in a head-spinning crash in US stocks in . Navinder Singh Sarao at his peak had a net worth of $70 million but is currently worth 1,000. The orders amounted to about $200 million worth of bets that the market would fall, a trade that represented between 20 per cent and 29 per cent of all sell orders at the time.