The FBI, spoofing and the curious case of Nav Sarao

The more I read into the curious case of Navinder Sarao, themore baffled I am as to the intensity of both the authority’s response and thepress coverage.

Sarao’s case has attracted worldwide media attention as the“man charged with causing the flash crash”.

This has been followed by numerous articles claiming how itis impossible that one man caused the flash crash.

Of course it is.

But, in fact, the flash crash is not at the heart of thecharges and the coverage stems from a small section of the charge documententitled (but not in fact explaining) Sarao’s Manipulative Activity Contributedto the Flash Crash.

Sarao is being charged with market manipulation stemmingfrom a strategy that was heavily reliant on layering.

Now layering is of course an illegitimate trading strategybut the response from (and indeed even the involvement of) the FBI is baffling.

Why is a prop trader from Hounslow facing years in prisonfor spoofing?

There have been a number of charges in recent years forlayering. The first came in 2010 when Finra charged traders at Trillium Tradingand last year the co-founder and others at Visionary Trading were charged bythe SEC.

Both charges were settled by a fine (substantially lowerthan Sarao’s £5m bail in both instances), neither involved the FBI and no onewas even threatened with prison or criminal prosecution.

It just doesn’t make sense.