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The wheels of justice grind slowly. But they do grind very finely. And after yesterday’s arrest of the ultimate Flash Trading poster boy Navider Singh Sarao, lots of powerful people around the world are a lot less comfortable. His arrest has been five years in the making and the obviously super-wealthy trader has been able to stay out of jail by putting up the equivalent of R80m in bail. But with so much at stake, the British-based Sarao will need more than a super slick legal team to avoid facing American justice. – Alec Hogg
By Financial Times journalists Jane Croft and Philip Stafford in London and Barney Jopson in Washington
A UK trader accused of contributing to the 2010 “flash crash” in equity markets began a fight against extradition yesterday as US lawmakers pledged to probe a case which raises questions over the fragility of markets and the strength of regulation.
Navinder Singh Sarao was granted bail of £5.05m in a London court as allegations that he played a role in triggering a dramatic plunge in equity prices revived anxiety in Washington over shortcomings in the workings of the world’s largest stock market.
Richard Shelby, the Republican chairman of the Senate banking committee, told the Financial Times the arrest of Mr Sarao “raises many questions that the banking committee intends to ask”.
The arrest has refocused politicians on the linkages between futures and equities markets and the regulators’ record. In particular, questions are being asked of the role of the Commodity Futures Trading Commission, the lead US derivatives regulator, the self-regulated Chicago Mercantile Exchange and the Securities and Exchange Commission which oversees cash equities.
Pat Roberts, who has jurisdiction over the CFTC as chairman of the Senate agriculture committee, said it was “monitoring developments to review the incident in its entirety”.
Mr Sarao’s arrest came the day after Paul Volcker, former chair of the Federal Reserve, revived his longstanding call for the CFTC to be merged with the SEC as he warned that the US’s “piecemeal” regulatory system left some systemic risks unchecked.
Mr Sarao, 36, of the west London suburb of Hounslow, was arrested on Tuesday. US authorities, who believe he made $40m from 2010 to 2014, are seeking to extradite him to stand trial inIllinois. He appeared at a Westminster court dressed in a canary yellow sweatshirt and white tracksuit trousers.
The US Department of Justice has charged him with one count of wire fraud, 10 of commodities fraud, 10 of commodities manipulation and one of spoofing, a form of market manipulation that involves placing an order and withdrawing it before it can take place.
US regulators allege he manipulated the prices of S&P 500 futures contracts just minutes before the May 6 2010 flash crash, which saw the Dow Jones Industrial Average plunge 600 points before rebounding 20 minutes later.
Mr Sarao was asked whether he consented to extradition to the US to which he replied: “No.” After a hearing of several hours the judge said Mr Sarao could be freed on bail of £5,050,000. He told Mr Sarao “the last 24 hours have been somewhat dramatic for you” as the “US seeks your extradition to face very serious criminal charges and to put you on trial to try and prove these”.
Defence lawyer Joel Smith told the court his client had betting accounts containing £100,000 and a trading account containing £5m: £4.7m of that was a loan to trade with which was “not his money”, he said.
Aaron Watkins, prosecutor, earlier objected to bail, saying Mr Sarao was facing charges that carried a “very long custodial sentence” if he was convicted on one or more of the offences. He was a UK citizen and his passport had been seized, the court heard.
Mr Watkins told the court that during the relevant period - June 2009 to April 2014 - the defendant was a futures trader operating from his UK home, through a company he set up, using commercially available software.
This enabled him to place multiple orders nearly simultaneously.
The court said the next hearing would be on May 26.
(c) 2015 The Financial Times Limited
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