Remember Nav Sarao…
The otherwise unassuming 36 year old trader operating from his parent’s house in the London suburbs who was scooped up and arrested back in 2015?
They blamed him for single-handedly causing the 2010 ‘flash crash’ in the US equities markets which wiped £570 billion from the value of US companies inside 5 minutes.
But he surely seems small fry compared to the institutional behemoths of High Frequency Trading (HFT) Michael Lewis spills the beans on in his book ‘Flash Boys’. In fact, many say the only ‘crime’ Sarao was guilty of is figuring out how to beat the sharks at their own game.
So could it be true it was the institutions themselves who ordered him be taken down a peg or two? A sacrificial lamb that could divert attention from themselves as well as being a thorn in their side they would prefer to have removed?
The good news is he avoided a lengthy custodial sentence.
But I still believe we’ll only ever scratch the surface of what REALLY happens behind the scenes. We only get to hear about the things these people get caught doing. Imagine how much goes by undetected?
But how exactly did he make all this money from his trades? How did he compete with the big boys with their microwave towers and direct-to-the-exchange fibre optic cables… from his mum’s back room in Hounslow?
Sarao apparently had a reputation for being down to earth (and even a bit stingy!). No flash cars for him – he rode around on a fold-up bike apparently. But not only did trading from his parent’s house save him paying desk fees – it may actually have been a key strategic move…
You see, one of the data servers for the Chicago Mercantile Exchange is located in Slough. And the nearer you are to the server, the quicker your order hits the market.
It means he was in a position to get his orders queued ahead of City based traders even if they hit the button at exactly the same point in time as him.
I’m sure it’s only a matter of time before someone makes a movie about his exploits. It’ll be a fascinating watch!
But in the meantime check out this mini-documentary about Nav by Bloomberg (it’s free to watch on YouTube):
Have a lovely Christmas, I’ll be back with you in the New Year, and wishing you all the best for 2021 (fingers crossed for a lockdown-free New Year!)