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Rather, a series of stock market manipulation and other factors led to the rapid drop and rise in the financial market.<\/p>\n
Sarao, a lone high frequency trader who was arrested this week in Great Britain, is accused of reaping more than $40 million in profits by placing and cancelling large orders in the CME Group’s E-mini Standard & Poor’s 500 stock index futures contract with no intention of the orders resulting in transactions. The illegal technique is known as spoofing.<\/p>\n
\u201cIt\u2019s implausible to me that this one guy could have exacerbated uncertainty to the point where no one wants to make markets anymore,\u201d Budish said. In retrospect, he thinks the relatively high uncertainty in the market had set the scene for the historic crash.<\/p>\n
Levine pointed out that the drastic stock market dip took place a couple of minutes after Sarao had turned off his high frequency trading algorithm. The few minutes of lag in market reaction indicate that \u201cother bad stuff,\u201d such as worries about the debt crisis in Greece, contributed to the unstable condition, causing enough people to be nervous, and eventually the diminishing market liquidity, he said.<\/p>\n
Nick Baker, also of Bloomberg News, expressed frustration over regulators spending nearly five years to identify the high frequency trader\u2019s misbehavior<\/p>\n
Levine countered that identifying spoofing is not a simple task and that canceling up to 99 percent of his trades did not make Sarao a spoofer.<\/p>\n
\u201cPeople put in orders that they don\u2019t trade on all the time,\u201d he added. As prices move, traders are constantly getting information and updating their positions.<\/p>\n
In an interview following the session, Levine said that high frequency trading has made the market better.<\/p>\n
\u201cThere are controversial things that need to be improved upon, but if you were to get rid of speedy computerized trading, market would clearly be worse,\u201d Levine said.<\/p>\n