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Morning Coffee: Where Navinder Sarao learned to trade. How IBD juniors change

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It seems that Navinder Sarao, the 36 year-old man accused of causing the flash crash in 2010, wasn’t completely self-taught after all. The Times reports that Sarao, a graduate of Brunel University, previously worked for Futex in Woking.

Back in 2012, we reported that Futex was offering an MSc in prop trading which its director said would give students an “edge” over others. “Academics – such as data interpretation and economic knowledge – are increasingly required to stay ahead of the competition on the trading floor,” he told us at the time. The course is still on offer today, along with a graduate programme. 

It’s not clear whether Sarao took the MSc or the graduate programme, or how long he spent working Futex. Nor is there any suggestion whatsoever that techniques imparted by Futex encouraged Sarao to engage in the ‘spoofing’ which led to his arrest. The Times simply suggests that ‘veteran traders’ at Futex taught Sarao how to bet on the markets. Sarao is alleged to have made $40m in five years through his subsequent efforts. At the time of his apprehension, he reportedly had £5.1m in the bank, £4.7m of which was a loan. 

Separately, ex-Lazard MD and author William Cohan, has observed how young bankers change. Initially, everyone is, “incredibly smart, ambitious, hardworking, and ethical,” says Cohan. The basic agreement is, “we will work absurdly hard and you will reward us with high pay and a fair promotion system.” However, the system breaks down once some start doing better than others. “Those getting higher pay and earlier promotions—seemed to have become less collegial and more Machiavellian. Some ignored phone calls from colleagues seeking help with analytical problems; others were ruthless in courting assignments working with “important” partners, elbowing out their peers,” Cohan says. “Nobody in charge seemed to mind. Rather, the powers that be seemed to encourage the Darwinian behavior. A common attitude at Lazard then was “It is not enough to succeed. Others must fail.”

Meanwhile:

“He drives that broken down green car, it belongs to his parents,” said a resident from across the road, who lives next door to Mr Sarao’s brother. “His mother works part-time in a pharmacy and his father is retired. They’re quite tight [for money] I’d say, they’re not going on holidays or anything like that.” (Business Insider) 

Sarao studied maths and science at A Level. (Telegraph) 

Sarao asked his software company for, a “a facility to be able to enter multiple orders at different prices using one click” and a function that would cause his “order to be pulled if there are not x amount of orders beneath it.” (Financial Times) 

The spoofer seeks to outsmart the front-running HFT algorithms.  If front-running is allowed to exist, spoofing is its best remedy. (BloombergView) 

The complaint against Sarao goes into great detail regarding the allegedly fraudulent orders that were never executed, it is maddeningly vague on the trades that were. (Alphaville) 

When he was trading, Sarao kept to himself, often tuning out noise and distractions with headphones. His interactions were typically limited to workers installing new trading algorithms, alleges an unnamed source. (Bloomberg) 

The flash crash happened when Sarao’s algorithm had been turned off, and the price should have been rebounding. (BloombergView) 

Evercore enjoyed an”unusually high level of success in recruiting” in the first quarter. It hired nine M&A bankers from rival firms and large banks. (Financial News) 

The top five fee-earners for investment banking services such as equity underwriting in the first quarter were all US banks. The costs of being global have risen greatly because of regulation, so having a profitable home market is a big advantage,” says Huw van Steenis, European banking analyst at Morgan Stanley. (Financial Times)

Jonathan Hoffman a former global rates trader who at the time of Lehman’s collapse was the bank’s third-highest paid rank-and-file employee, was paid an $84 million bonus by Barclays when it bought Lehman. Hoffman is arguing that the Lehman estate still owes him $84 million for his work for 2008. (WSJ)

Standard Chartered just appointed the former head of GCHQ, Sir Iain Lobban, to a committee set up to advise its board on financial crime. (Guardian) 

Deutsche Bank is setting aside €1.5bn (£1bn) for litigation costs, fuelling expectations that it may soon be the latest bank to be fined for rigging the benchmark Libor interest rate. (Guardian) 

Enraged man shoots malfunctioning computer.(BBC)  

Comments (1)

Comments
  1. the real issue is that exchanges and regulators have allowed cheating for years ; in fact I asked FSA/FCA to investigate abuse /manipulations in our markets between 2008/2012 and their conclusion was that there was NONE ………….
    Sadly as traders we witnessed every day abuse and manipulations and it was ignored and even encouraged by exchanges . NOW thats your story ! How are exchanges teflon ; nothing ever sticks to them ! Their remit for RIE status is to provide “fair & orderly markets ” and on this they clearly failed ! I have since asked FCA to re open my investigation BUT they refuse .

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