TheAllegedFlashTradingMastermind

LivedWithHisParentsandCouldnt
Drive
bySuziRing,JohnDetrixheandLiamVaughan
June9,20156:01AMCEST

AnartistcourtroomsketchshowsNavinderSinghSaraoduringhis
secondappearanceatWestminstermagistratescourt,inLondon,
U.K.,onApril29,2015.
Artist:PriscillaColemanviaBloomberg

NavinderSinghSaraowillneverrankamongthemostnotoriousinmatesofHMPrisonWandsworth.
WilliamJoycebetrayedBritaintotheNazis.RonnieKrayruledtheganglandsoftheEastEnd.Bruce
ReynoldsmastermindedtheGreatTrainRobbery.
TodayNavSaraositsina10footbysixfootcellatWandsworth,consideredoneoftheworstprisonsin
Britain,accusedofanaltogetherdifferentsortofcrime:helpingtowipemorethan$1trillionoff
financialmarketsfiveyearsago.AtWanno,aforbiddingDickensianfortresssouthoftheRiver
Thames,timemovestothesamemonotonousrhythm:thejangleofguardskeysat6:30a.m.yard
exerciseat8a.m.dinnerat4:30p.m.lockdownby8p.m.
UntilonemorninginlateApril,virtuallynooneinthegreatinvestmenthousesoftheCityhadever
heardofSarao.ButthenScotlandYardarrivedinHounslow,onthewesternfringesofLondon.What
happenednextstunnedeveryone.

Saraowasarrestedathisparentsmodest,suburbanhomethatTuesdayandaccusedofhelpingtocause
thesocalledflashcrashof2010,whentheU.S.stockmarketplungedinamatterofminutes.While
pricesrecoveredalmostasquicklyastheydfallen,theepisodestaggeredinvestors.Noonecould
explainit.Hereatlast,authoritiesclaimed,wasananswer:aglorifieddaytraderlivingwithhismom
anddadnearHeathrowAirport.

PrisonTracksuit
ThisTuesday,Saraowillreturntocourtinhisgrayprisontracksuitandsitintheglassfronteddockfor
aneighthtime.TheU.S.isseekingtoextraditehimon22countsrangingfromwirefraudtomarket
manipulation.
Sarao,36,deniesallthecharges,andmanyobserversdoubthe,oranyoneelse,causedtheflashcrash
singlehandedly.Instead,theypointtoanuncomfortabletruthabout21stCenturymarkets:computers,
notpeople,largelydrivepricesmomenttomoment.
Ivenotdoneanythingwrongapartfrombeinggoodatmyjob,SaraoexclaimedincourtinMay,the
onlytimehehasspokenpubliclysincehisarrest.
Forallthequestionmarkssurroundingthiscase,thebiggestofallhasbeenSaraohimself.ToFleet
Street,heistheTheHoundofHounslow,atabloidcaricatureofCitygreedandexcess.

ThehomeofNavinderSinghSarao
Photographer:CarlCourt/GettyImages

YetinthispostMadoffera,whengiantbankspleadguiltytofeloniesthatwouldputordinaryperps
behindbars,Saraodefiesnearlyeverythingwevecometoexpectfromourfinancialvillains.Therewas
noAlainDucasseinLondon,noaprsskiinGstaad.Interviewswithpeoplewhokneworworkedwith
Saraopaintaverydifferentportraitand,insomeways,astrangerone.Manyspokeontheconditionthey
notbenamedtoavoidbeingdrawnintothescandal.

ALondonlawyerforSaraodeclinedtocomment.AspokesmanforWandsworthprisoncontestedits
descriptionasoneoftheworstjailsandsaidithadbeenpraisedforitsperformance.

PathologicallyFrugal
Saraosdevioustradingnettedmanymillions,authoritiesallege,butcolleaguessayhewasalmost
pathologicallyfrugal.HeworkedlargelyinlinewithU.S.markets,whichenabledhimtocommute
acrossLondonbetweenrushhourstogetcheapoffpeakfares.Hewouldbuysandwichesafterthelunch
crushtosave50pence.AskedbyacolleaguewhyhedidnttreathimselftoaBugatti,Saraosaidhe
didntknowhowtodrive.

Sarao,36,deniesallthecharges,andmanyobservers
doubthe,oranyoneelse,causedtheflashcrashsingle
handedly

NeighborsintheSikhcommunitywhereSaraogrewuprememberhimasnothingspecial,ifthey
rememberhimatall.Hisolderbrothersfollowedsafe,predictablepaths:onebecameanoptician,the
otheranITspecialist.
Saraoreachedformore.Eachmorninghewouldawakeninthestuccohomewherehegrewup.His
motherwoulddrivehimtothetraininherold,greenVauxhallCorsa,beyondthesarishopsandtemples
oftheneighborhoodsLittleIndia.

NoiseReductionHeadphones
Fifteenmileseast,hewouldstepoffintheCityandintohisotherlife.BeyondSt.Pauls,towardTower
Bridge,hewouldstrollalongMinoriesstreettoSt.ClareHouse,takethelifttothefifthflooranddrape
hisleatherjacketoverthebackofhischair.Thenhewouldputonnoisereductionheadphonesandsetto
work.
Hereatlastpeoplenoticedhim.EveryoneatCFTFinancialsLtd.hadheardaboutNav,astheyhadat
FutexLtd.,thesmalltradingfirmwherehestartedout.Overtime,hisambitioncurdledtoward
obsession,evenparanoia.Hebecameconvincedthathisordersweresomehowbeingleaked.Buttothe
mostlymale,mostlyyoungscreenjockeystryingtoscratchoutalivinginthemarkets,Saraowasa
legend.

BigPositions

Thisguy,forwantofabetterword,hadballs,MiltosSavvidis,atraderatFutex,laterrecountedto
prospectiveemployees.Heusedtogetintobigpositions,hesawtherisk,hesawthereward,andhe
tookthetrades.
SaraoarrivedatFutexasagraduatetraineein2003afterstudyingcomputerscienceatBrunel
University,notfarfromhishomeinHounslow.Futexspotstraineesasmuchas1millioneuros($1.2
million)inreturnforacutofprofitsand,beforelong,Saraowasthetalkofthetradingfloor.

NavSarao'snewplaceofresidence,WandsworthPrison
Photographer:GrahamBarclay/BloombergNews

Whiletheothertraderswereekingout500pounds($765)aweek,hewasclearing500,000pounds.He
satbyhimself,awayfromtherest.Attheendoftheday,hiscolleagueswouldtrytosneakalookata
computerlogofeveryonesprofitsandlosses.Saraowasalmostalwaysatthetop.
Hisbigreturnsmeantbigrisks.Mostpeopleintheriskdepartmentwouldsay,Hello,Idontreally
wantthatbecauseifitdoesgopearshaped,blackswanevent,wheredoyougetout?saidNeil
Crammond,aformerFutexemployee.Thereisnoout.
Butinabusinesswheremoneyistheultimatemeasure,andwheresuccessmeansBollingerandBeluga,
Saraostoodoutforanotherreason:heneverseemedtospendmuchmoneyatall.PaoloRossi,the
founderofFutex,saysSaraowassofrugalitwasalmostaneccentricity.

SportsDirect
OnedaySaraoarrivedattheofficewith100poundsofnewclothesfromSportsDirect,adiscountchain.
Whenthemarketsmovedagainsthim,hereturnedhispurchases.Atthetime,hewasmakingabout
$130,000onagoodday,maybe$70,000onamediocreone.
ButSaraowasgrowingtiredofhavingtosharehiswinningswithFutex.Newtradersusuallykeep50
percentoftheirprofits,whilestarslikeSaraokept90percent.

Thisguy,forwantofabetterword,hadballs

Eventhatwasntenough.SoSaraoendedhiscontractandstruckoutonhisownatCFTFinancials,a
proprietarytradingfirmthatalsorentedoutspacetoprivatetraders.Helinedupbackingandtechnology
supportfromMFGlobalHoldingsLtd.,thenowdefunctfirmrunbyformerU.S.SenatorJonCorzine.
AccordingtoformerCFTtraders,hecameandwentashepleasedandkepttohimself,ashehadat
Futex.
Ijustwanttobethebiggesttrader,Saraotoldonecolleagueshortlyafterstartingthere.

Braveheart
CFTisnoGoldmanSachs.ButamongthesmallprivatetradersinSaraosworld,ithadareputationasa
placewhereasavvyyoungguycouldgetrich.AndrewPriston,directoratCFTsMontrealoffice,was
nicknamedBraveheartintheU.K.media.Hewasaregularonthe30Under30listofsuccessful
tradersatTraderMonthly,ashortlivedlifestylesmagazineforfinancialplayers.BeforejoiningCFT,
Saraohadcontactedtheeditortoaskhowtomakethelist.
IdidntknowNavpersonallybutobviouslyheardhisnamementionedmanytimesoveratCFT
London,Pristonsaidinanemail.
ThenewfreedomatCFTalsomeantanewapproach.AccordingtoU.S.allegations,itwasduringthose
yearsthatSaraobeganamassiveefforttomanipulatestockfuturesonCMEGroupInc.sGlobex
electronictradingplatform.

Spoofing
Thoseallegationscenteronwhatsknownasspoofing,anillegaltechniquethatinvolvesfloodingthe
marketwithbogusbuyorsellorderstodrivepricesonewayoranother.Theideaistofoolothertraders,
bothhumansandcomputers,toenabletheperpetratortobuyloworsellhigh.
Manytraderssayspoofing,whileillegal,isrampantintodayshightechmarketplace.Authoritiessay
SaraodevelopedhiscomputeralgorithmsinJune2009toalterhowhisorderswouldbeperceivedby
othercomputers.

AprisontruckbelievedtohavebeentransportingNavinderSingh
Sarao,whichleftWestminsterMagistratescourtinLondononApril
22,2015.
Photographer:WillOliver/EPA

Onthedayoftheflashcrash,May6,2010,morethan$1trillionwaswipedoffthemarketsinthespace
ofhalfanhour.Saraoallegedlymadeabout$900,000usinganalgorithmthatgaveamisleading
impressionofthevolumeofsellorders.
Intheaftermathofthecrash,suspicionimmediatelyfellonhighfrequencytradingfirms,whoseultra
fasttradinghascometodominatethemarketplace.ButwhileSaraousedtradingalgorithmswhatone
formercolleaguecalledaturbochargedspreadsheethismethodswereafarcryfromthoseemployed
byHFTfirms.

DailyTea
NavigatingtheinsandoutsofhightechmarketsisnowtheleastofSaraosworries.Whilingawayupto
23hoursadaylockedupandconservinghisfourdailyteabagsaregreaterpriorities.Ifheslucky,he
mightgetajobinthelaundryorkitchenuntilhisfateisdecided.
WhileSaraositsinWanno,pressingquestionsremainunanswered.First:couldalonetraderreallybear
someresponsibilityfortheflashcrash,oneofthemostharrowingmomentsinWallStreethistory?
Second,andperhapsmoreimportant:ifso,dontwehaveabiggerproblem?
Intheolddays,itwasabattlebetweentraders,saysPaulRotter,atradernicknamedTheFlipper
unfairly,hesays,inreferenceatradingstrategythatinvolvedpostingandthencancelingbigorders.
Nowitsabattleofmachinesandmaybesomehumans.