The high-frequency futures trader who stands accused of contributing to the stock market "flash crash" in May 2010 told a London court Wednesday that he did not consent to extradition to the U.S.
He was granted conditional bail by Westminster Magistrates' Court, which was set at £5 million ($7.5 million).
The U.S. Justice Department has charged Navinder Singh Sarao, 36, of West London, with wire fraud, commodities fraud and manipulation, and one count of "spoofing"—when a trader places a bid or offer with the intent of cancelling it before execution.
During the proceedings, District Judge Quentin Purdy said that Sarao faced serious criminal charges and had "clearly upset the Americans, to put it mildly."
Sarao was arrested Tuesday in Britain. U.S. authorities have requested his extradition to stand trial in America, following claims that his actions helped cause the stock market crash that saw the Dow Jones industrial average plummet 1,000 points on May 6, 2010.
Sarao told the court Wednesday that he did not agree to the extradition. Purdy set Aug. 18 and 19 as provisional dates for a full extradition hearing.
The conditions of bail state that Sarao must stay at his home address, have an electronic curfew at night and no access to the Internet.
A person who answered Sarao's phone told CNBC earlier Wednesday that he did not want to comment.
Spoof trades
The prosecution said Sarao could have a "very lengthy" sentence if found guilty. Commodity fraud alone has a maximum prison sentence of 25 years.
The prosecution also argued that he persisted with his activities despite calls to cease from the U.S. authorities, and that the spoof trades could have made him £26 million ($40 million) over four years.
The court heard Wednesday that Sarao—who was wearing sports apparel and spoke very softly—was born, raised and educated in the U.K. He had worked in banking for some time
The U.S. Department of Justice alleges that Sarao "used an automated trading program to manipulate the market for E-Mini S&P 500 futures contracts (E-Minis) on the Chicago Mercantile Exchange (CME)."
Sarao's alleged manipulation of those futures tied to the Standard & Poor's 500 Index "earned him significant profits and contributed to a major drop in the U.S. stock market on May 6, 2010, that came to be known as the 'Flash Crash,' " the Justice Department said in a release.
The trade also allegedly used a "layering" strategy—a form of spoofing where "a trader places multiple, bogus orders that the trader does not intend to have executed." These fake orders could manipulate a price by tricking other trading participants into believing there is either increased supply or demand for a security.
Extradition in focus
The full hearing, slated for August. will likely decide whether an extradition to the U.S. is compatible with Sarao's rights under the European Convention on Human Rights.
This case shows that U.S. regulators are now alleging that market manipulation played a role in the "flash crash."
Sarao's case is seen as a possible precedent for future ones and stands out because it is a criminal rather than civil case. It will also be test of U.S. authorities' ability to successfully win a large market manipulation case.
The extradition process from the U.K. to the U.S. is seen as controversial because the U.S. does not need to demonstrate "prima facie" evidence (enough evidence to take a case to trial) of a crime having been committed prior to extradition. This is similar to the U.K.'s extradition arrangements with many other countries.
Credit Suisse UK entered into a security agreement with Nav Sarao Futures in 2010 that was a standard banking arrangement and not a mortgage, a Credit Suisse spokesman said on Wednesday.
—Reuters and CNBC's Evelyn Cheng, Everett Rosenfeld, Catherine Boyle and Matthew Cuddy contributed to this report.
