Five years after the infamous "flash crash" of the Dow, financial regulators think they've got a key culprit, and the case is rather astonishing, writes Michael Lewis at Bloomberg View. Navinder Singh Sarao isn't the villain you might expect, and a question posed by Lewis gets to the heart of it: "How can a guy working from his parents’ house in suburban England whose only actionable orders were to BUY stock market futures cause such a sensational collapse in US stocks?" The answer involves Sarao's technique of "spoofing," which involves submitting tons of fake orders quickly to manipulate prices. Among other things, Lewis would like to know whose algorithms were so vulnerable to such a trick. That is, who "was the fool" that day on May 6, 2010?
Sarao used the now-defunct MF Global to make his orders, which he placed on the Chicago Mercantile Exchange. Did either not notice something was screwy or opt to look the other way? "There’s a fabulous yet-to-be-told story here, about a smart kid in the UK who somehow figures out that the machines that execute the stock market trades of others might be gamed—and so he games them." It works spectacularly well, but afterward, instead of going into hiding, he just keeps on spoofing from his parents' home. Now he seems stunned to be in trouble. "He’s not some kind of exception to the standard operating procedure in finance," writes the Flash Boys author. "He’s a parody of it." Click for his full column. (Read more markets stories.)