In today’s markets, every microsecond counts. Jon Cartwright discovers how the UK’s National Physical Laboratory is keeping regulators up to speed
Just after 2.30 p.m. local time on 6 May 2010, Wall Street experienced one of the biggest, and briefest, crashes in its history. Within minutes, the Dow, one of the three most-followed US market indices, plunged 9%, while prices of individual shares became intensely volatile, in some cases fluctuating between tens of dollars and cents in the same second. More than $850bn was wiped off stock values – although by the end of the trading day they had mostly recovered.
What caused the Flash Crash, as it came to be known? Early theories blamed either an error in trading software, or a human at a computer inadvertently selling a large number of shares – the so-called fat-finger hypothesis. Some analysts even claimed the Flash Crash was merely part of the more exaggerated ups and downs we should expect as financial trading becomes more decentralized and complex. But many suspected foul play.
In April 2015, at the request of US prosecutors, Navinder Singh Sarao was arrested at his parents’ semi-detached home in Hounslow, west London, UK. A lone trader, Sarao, then 36, was accused of crafting “spoofing” algorithms that could order thousands of future contracts, only to cancel them at the last minute before the actual purchases went through. By exploiting the resultant dips in markets, he allegedly earned some $40m (£27m) over five ?years. […]
The rest of this article is available here.