Navinder Singh Sarao: US seeks to extradite British trader blamed for flash crash that ravaged equity markets

Authorities claim futures trader Navinder Singh Sarao was partially responsible for the mysterious market chaos five years ago

Navinder Singh Sarao is said to have manipulated the price of futures on the CME, leading to market chaos in 2010 (Rex)

American financial regulators have charged a British trader with helping to cause the infamous “flash crash” that ravaged US equity markets on 6 May 2010.

The US Department of Justice and the Commodity Futures Trading Commission (CFTC) alleged that Navinder Singh Sarao, a futures trader from Hounslow, was partially responsible for the mysterious market chaos five years ago.

The Justice Department said Mr Sarao, 37, was arrested by the British police and that the US authorities are now seeking to extradite him for trial in Illinois. The CFTC is also bringing parallel civil charges against him.

In the criminal complaint Mr Sarao, trading from his UK residence through his company Nav Sarao Futures Limited, is said to have manipulated the price of futures on the Chicago Mercantile Exchange (CME).

According to the complaint, Mr Sarao placed multiple huge sell orders on the CME with the goal of driving down prices. He then allegedly profited from the subsequent price movements while cancelling the original sell orders. The Justice Department also says that Mr Sarao “misrepresented and lied” about his computer automation in order to achieve the manipulation.

During the flash crash the Dow Jones Industrial Average lost 9 per cent of its value in five minutes – before springing back rapidly. It was the second largest intra-day movement in Dow Jones’s history. Initial investigations suggested that the wild price swing was a consequence of the proliferation of automatic computer algorithm trading – which created dangerous momentum behind equity movements – rather than deliberate market manipulation. The event was hugely embarrassing for American financial regulators and sparked an extensive debate about the fragility of electronic trading markets.

The US authorities allege price manipulation by Mr Sarao contributed to the extreme May 2010 price swing but they also claim his firm continued to manipulate the US futures markets until as recently as 6 April this year. The CFTC estimates that his total profits from manipulation over the years were in the region of $40m (£27m).

Aitan Goelman, the CFTC’s director of enforcement, said: “Protecting the integrity and stability of the US futures markets is critical to ensuring a properly functioning financial system.” He added that the charges against Mr Sarao “make clear that the CFTC, working with its partners on the criminal side, will find and prosecute manipulators of US futures markets wherever they may be”.

Mr Sarao was charged with one count of wire fraud, 10 counts of commodities fraud, 10 counts of commodities manipulation, and one count of “spoofing” (bidding or offering with the intent to cancel the bid or offer before its execution).