Navinder Singh Sarao, the trader arrested last month on U.S.
charges he manipulated futures prices and contributed to the May
2010 "flash crash, " leveled claims of similar misconduct against
other traders before his arrest.
Mr. Sarao complained to the Chicago Mercantile Exchange, where
he traded futures contracts, more than 100 times over the past
several years about traders he believed were engaging in
manipulative conduct, people familiar with the matter said.
His last complaint came just weeks before he was arrested on
Justice Department charges, one of the people said.
Previously released documents have shown Mr. Sarao urging
exchanges to target high-frequency trading practices he viewed as
manipulative, but the frequency and extent of his complaints
weren't known. His complaints underscore the extent to which Mr.
Sarao viewed his own trading as a legitimate counter to other
high-speed traders.
Mr. Sarao appears to have filed an unusually large volume of
complaints. "That would be considered a high number," said Ray
Cahnman, a longtime futures trader and chairman of the proprietary
trading firm Transmarket Group LLC. "Most people would break down
before they get to 100 because they realize the complaints aren't
going anywhere," he said.
Mr. Sarao has described himself in an email released in
connection with the case as an "old school point and click prop
trader" who "changes his mind very very quickly." He said his
orders all were legitimate, unlike orders from high-speed traders,
which he described as "neither genuine or possibly not even
tradable."
In the email, Mr. Sarao said "manipulative" high-speed traders
could take advantage of him by zipping in and out of the market
within the four milliseconds it took him to modify orders.
The volume of the complaints, which came as frequently as every
few weeks and identified specific moments in which he believed
traders had violated rules, suggests Mr. Sarao was familiar to CME
investigators, who had flagged his trades as suspicious as early as
2008, according to the Justice Department complaint.
While the CME generally follows up on complaints from market
participants and investigates activity its systems flag as
suspicious, it is unclear whether the CME took specific action on
Mr. Sarao's complaints.
On Wednesday, Mr. Sarao made his fourth appearance before a
London court, where his lawyers said he has been granted publicly
funded legal aid since many of his assets have been frozen and he
can't pay his legal bills. A U.S. judge ordered the freeze last
month at the request of the Commodity Futures Trading Commission,
which filed civil charges against him. Mr. Sarao has so far been
unable to pay the GBP5 million ($7.8 million) on which his release
is conditioned.
Mr. Sarao, who is fighting extradition to the U.S., wore a gray
tracksuit and appeared calm in court, a contrast to last week when
he shouted that he had "done nothing wrong."
The U.S. criminal and civil charges allege that from 2010 to
2014, Mr. Sarao used an illegal trading strategy known as spoofing
and contributed to the minutes-long market meltdown in May 2010 in
which the Dow industrials sank 1,000 points, then quickly
rebounded.
In documents released in connection with the case, Mr. Sarao is
seen as pitting himself against high-speed traders, asking
authorities to investigate their practices.
"I don't like the HFT arena and have complained to the exchange
numerous times about their manipulative practices, please BAN IT,"
he wrote last year in response to questions he had received from
the U.K. financial regulator, the Financial Conduct Authority.
Mr. Sarao's frequent complaints to the CME about high-frequency
traders make sense because they were his fiercest competitors, said
Craig Pirrong, a University of Houston finance professor. "He
portrays himself as an old-fashioned click trader," Mr. Pirrong
said, meaning he manually entered trades. "He obviously used
algorithms but he wasn't an HFT guy. He was inherently adversarial
with those firms."
Mr. Pirrong said the CME is inundated with messages about
manipulative trading in the market. It is unclear if Mr. Sarao's
would have stuck out compared with others. "In one way, this is
part of the problem because the signal to noise ratio might be
pretty small," he said.
On Tuesday, U.S. lawyers for Mr. Sarao asked for a hearing in
the CFTC case, filed in federal court in Chicago, to be delayed to
next month. His lawyers said in a filing they need more time in
part because Mr. Sarao "has had limited access to the outside
world" since his arrest and is "only able to meet...at certain
times, and on certain days."
His lawyers, who include well-known U.S. white-collar defense
lawyer Michael Kim, also said Mr. Sarao must rely on intermediaries
to provide them with materials necessary to build his defense.
One former British banker, David Bermingham, who lost an
extradition battle to the U.S. and pleaded guilty in 2007 in
connection with the Enron fraud, urged Mr. Sarao not to resist
extradition, because doing so would ultimately land him in a
maximum-security prison once he is sent to the U.S. "You can't
defend a white-collar case from inside a 10-foot by 7-foot cell,"
Mr. Bermingham, now an extradition consultant in the U.K.,
said.
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