If you remember the stock market "Flash Crash" on May 6, 2010, then you'll remember the panic that quickly ensued as a result from it. However, in mid-April 2015, one single trader was arrested for causing the flash crash.
Initially, the SEC's former high frequency trading (HFT) investigator Greg Berman blamed Waddell & Reed Financial Inc. (NYSE: WDR) for "layering and spoofing" (tactics in which HFT traders place orders that they cancel before they are executed to create the false impression of demand. Doing so entices others to buy or sell a stock at the false price). But on April 21, 2015 – five years later – the SEC has fingered a new culprit… an individual: Navinder Singh Sarao.
Navinder (of Nav Arao Futures Limited Plc. in the U.K.) is a futures trader charged with illegally manipulating the stock market all by himself from his parents' basement. And this is where the conspiracy theory comes in – one that you might have already guessed: Sarao is a scapegoat.
But for whom?
Institutions such as the following high-frequency trading firms (a.k.a. "The Flash Boys"): Allston Trading LLC; Hudson River Trading LLC; Jump Trading LLC; Latour Trading LLC, which is an affiliate of Tower Trading; Merrill Lynch; Pierce, Fenner & Smith, owned by Bank of America Group; Octeg LLC, which has been merged into a unit of KCG Holdings Inc; Tradebot Systems Inc; Two Sigma Investments LLC; Two Sigma Securities LLC; and Virtu Financial. According to The Huffington Post, these firms have been involved in an SEC-led investigation for some time now: "The SEC has been seeking evidence of abuse of order types, as well as traditional forms of abusive trading like 'layering' or 'spoofing' and other issues relating to high-frequency trading that might be violations of the law, SEC Director of Enforcement Andrew Ceresney told Reuters in May."
And while the SEC hasn't produced enough evidence to take these institutions to court just yet, they do have enough evidence to indict Sarao.
According to London Evening Standard, veteran futures trader Danny Riley was appalled by the sudden shift in blame. "Nearly five years after the Flash Crash, the FBI have come to the conclusion that it didn't have anything to do with some of the largest algorithmic trading firms in the world," he wrote in a scouring and sarcastic blog entry. "It had nothing to do with [high frequency traders] KCG, Jump Trading, Optiver, IMC Financial Markets, Tower Research (Spire Europe), Citadel Tactical Trading, Hudson River Trading, Virtu Financial, Tradebot Systems, Sun Trading, Spot Trading, Two Sigma Investments, Flow Traders, Renaissance Technologies or RSJ Algorithmic Trading, but it all comes down to one trader in London by the name of Nav Sarao."