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Morning Coffee: Everyone else was ‘spoofing’ too, says flash-crash trader

Just spoofing you

Just spoofing you

Navinder Singh Sarao, the British trader accused by US prosecutors of contributing to the 2010 flash crash, wasn’t just a found of living a parsimonious lifestyle. His alleged penchant for a technique called “spoofing” the markets has been brought to light in a string of emails contained in a new US grand jury indictment filed against him in Chicago yesterday.

Spoofers use disruptive algorithms to feign interest in trading financial products, creating an illusion of exchange pessimism in the futures market. “If I am short I want to spoof it [ie the market] down, so I will place join offer orders,” Sarao wrote in a February 2009 email to a programmer he’d asked to build trading software. “I want to put these join offer orders in the system much like a normal order but they are only seen when the market bid is taken out, or when the market goes offered.”

Interestingly, the emails suggest that Sarao didn’t see spoofing as anything at all usual. Having received regulatory guidance about the legality of his trades, he joked in a May 2013 email: “Lol, guarantee if I switch on my computer I’ll see the same people breaking all those rules, day in, day out.”

Sarao, did however, fret about whether his spoofs were working or not. He wrote in February 2009: “I need to know whether you can do what I need, because at the moment I’m getting hit on my spoofs all the time and it’s costing me a lot of money.”

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