FLASH CRASH

When the FBI caught up with him five years ago, Navinder Singh Sarao, a veteran of boardrooms and trading pits, was living with his parents near Heathrow Airport. As then–London-based Bloomberg reporter Vaughan writes, Sarao had chalked up quite a career in just a few years, having made $70 million by gaming the futures market and helping precipitate “the most dramatic market collapse in recent history,” the Flash Crash of 2010. Sarao built a system of automated trading that requires some careful unpacking—a job that Vaughan does well, explaining the technique of “spoofing,” sending false signals for orders that are then canceled before they’re fully executed, leading other traders to follow as a herd and drive the market up or down. In a world of trading systems that are programmed to jump on the slightest market movement and to monitor and anticipate moves by other traders, spoofing has been defended as the modern equivalent of the “misdirection and gamesmanship [that] had been considered part of the cut and thrust of financial markets” back in the days of open-floor trading. High-frequency trading verges on the same territory, and it’s this generally secretive, technology-driven approach that dominates a big chunk of the futures market. Still, as Vaughan writes, spoofing was harder to pull off in the old-school pits—where “serial offenders were liable to be taken outside and made to understand the error of their ways”—than it is on the computer screen. Sarao, a public enemy to the feds, turns out to be a verging-on-sympathetic character while the computer-driven market, where “trade speeds were now measured in nanoseconds,” comes in for thorough examination and is found wanting.

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