I doubt it. I find it hard to believe that one man's layering was responsible for the "flash crash." S&P Minis trade an average of 1.9 million contracts per day. In notional terms,that is $200 billion of market exposure. [ 1.9M (contracts) x 50 (futures multiplier) X $2,100 (S&P Price) =$200,000,000,000 ]
Let's look at e-mini volume around the time of the "flash crash." An average of 2.8 million contracts traded in that time period. There was a spike on the day of the "flash crash" and the day after but that is normal in a more volatile market.
It is alleged that Sarao made a million dollars trading during the "flash crash," when the market lost over $1 trillion in market cap. That is a minuscule amount of money in the grand scheme of things. I knowmultiple traders that made tens of millions during the "flash crash" and definitely weren't manipulating anything.
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For Sarao, to expose himself to that much risk for a relatively small profit doesn't make economic sense. If he did what is alleged, the only thing he is only guilty of is being dumb and using poor risk management. Plus, why did it take five years to find him?
I know this is unpopular opinion because the general public loves a hanging. Especially, if it's a rich, arrogant foreigner. However, the numbers don't add up to blame Sarao for the "flash crash" and I think he is simply a scapegoat for the authorities' own incompetence.
Commentary by Raj Malhotra (Raj Mahal is his stage name), a former Wall Street trader-turned-stand-up-comedian. By day, he works as a senior trading mentor at the Institute of Trading and Portfolio Management (ITPM). He has worked at Wall Street firms covering three continents, including at Bank of America, BNP Paribas and Nomura. By night, he is a comedian who draws from his unique ethnic background and Wall Street career to entertain audiences, highlighting the struggles of the 1 percent. He can be seen at Gotham Comedy Club, Broadway Comedy Club, NY Comedy Club, Greenwich Village Comedy Club, and the Tribeca Comedy Lounge. Follow him on Twitter @RajMahalTweets and @RajWSGuru.