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Morning Coffee: How a 36 year-old trader earned $900k in a day. Credit Suisse still regretting senior M&A redundancies

Navinder Singh Sarao

Where Navinder Singh Sarao was based

If Twitter is any indication of reality (which it may not be), traders around the world are quietly respectful of 36 year-old Navinder Singh Sarao, the trader who was arrested in the UK yesterday and stands accused of precipitating the so-called ‘Flash Crash’ of 2010. 

Working from an inauspicious house in London’s Hounslow (pictured below), Sarao is said to have made $900k on May 6th 2010 when US stocks plummeted by $1 trillion in minutes. Between 2010 and 2014, Bloomberg reports that he made a further $40m as he sold on the contracts he’d purchased. On May 6th 2010, Sarao is said to have used ‘layering’ and ‘spoofing’ strategies in which he submitted orders several ticks above the best offers in the market with no intention of fulfilling them. In an email to Eurex, the Financial Times reports that Sarao claimed to have ‘“trade[d] extremely fast” and to have entered all orders manually himself.

High Frequency Trading (HFT) firms themselves are frequently accused of layering and spoofing, leading some traders to suggest that Sarao is being unfairly singled out. “By manually spoofing size he made the HFT spoofers think he was real so he tricked them and beat them,” said trader Nicola Duke on Twitter. 

Unfortunately for Sarao, spoofing was outlawed by the Dodd Frank legislation of 2010. He now faces extradition to the US. The most recently filed accounts for his company, Nav Sarao Futures, suggest Sarao has plenty of money somewhere to see him through. In 2013 he achieved a turnover of £9m, but had a cost of sales of just £65k and staff costs for his single employee of £7.6k. Nonetheless, he somehow achieved unspecified ‘administrative expenses’ of £14.7m.

The Nav Sarao Futures HQ

The Nav Sarao Futures HQ

Separately, Credit Suisse still has reason to regret parting company with whole swathes of senior M&A bankers in 2012. As we noted yesterday, the Swiss bank seriously under-performed the market in M&A with a 26% drop in revenues in its advisory business while US rivals achieved increases of between 41% and 70%. That wouldn’t have anything to do with the fact that Credit Suisse dumped a third of its senior M&A staff three years ago would it?

Meanwhile:

Credit Suisse investment bank’s CHF 149bn of risk weighted-assets are twice as high as UBS’s. And the investment bank used 62% of CS’s risk-adjusted assets to produce 54% of its revenues. (BreakingViews) 

Credit Suisse’s common equity Tier 1 capital ratio actually fell — from 10.1 to 10 percent — “partly because much of its capital buffer is denominated in now relatively weaker currencies” and partly because it was “buying up its shares to deliver to employees as compensation.”  (BloombergView) 

One of the two new heads of M&A at Barclays in EMEA took a year long sabbatical and only returned in January. (Reuters) 

Anil Rachwani, the former head of technology investment banking at J.P. Morgan, is joining Evercore. (The Street) 

This is why you want to work for Goldman Sachs or Morgan Stanley in equities trading. (Bloomberg) 

Before those chief executives who stuck with FICC become too smug, revenues are still a far cry from 2009, when the top ten investment banks earned $142bn from FICC according to data firm Coalition. Last year, they earned $69.4bn. (WSJ)

How I passed CFA Level I first time. (300 Hours) 

Deutsche Bank has quietly launched its own version of Google. (IOIC) 

Comments (1)

Comments
  1. this trader was a point and click trader with massive size ; 20000+ s&Ps futures .
    NAV ; as he was known did not trade from his house but from a “prophouse” ; cleared and managed by an FCM and indeed FSA .
    He regularly had massive p&l swings and a +$900000 day during the flash crash was not massive on a 1000 point+ move .
    Sadly he has been made a scapegoat by regulators and as a individual trader has not protection
    ; really Citadel and Virtu Financial are far more guilty yet have managed to escape any punishment
    .

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