April 27, 2015
Navinder Singh Sarao was caught cheating by spoofing. It took 5 years to finally prosecute him. 5 years during which time he continued to cheat. Could one say: regulatory agencies were sleeping at the wheel? For sure. Could one add that: brokers, exchanges and secondary parties that observed the misconduct were lending a blind eye since they could benefit indirectly by doing so?
If the law of the land defines spoofing as a crime, then everyone should observe the law or suffer the consequences: an arrest, a fair trial, and a conviction if any, good or bad.
It's a pity that an individual is singled out after 5 years for what is prevalent in the trading industry. Nonetheless, even if Sarao can be viewed as a scapegoat, it does not excuse the crime. He should still be prosecuted.
I find it alarming to see some people supporting Sarao. I even read one portfolio manager declaring him a hero of sort. This is the same as saying that he did not consider spoofing a crime and that his fund has, is, or would be interested in using this trading technique to increase its returns. Sorry, but he lost my trust and confidence on that.
Next thing you know he might offer spoofing as a deterrent to front-running as John Arnold, of Enron fame, did a few weeks back in a Bloomberg article. This would amount to using a criminal act to justify another criminal act. That principle would be hard to justify in court.
Most other big players in this spoofing field won't be prosecuted for this crime. They are "protected" by lobbies and lawyers ready to defend them for things they have not done or will finally agree not to do in the future. They might even accept to pay huge fines for their "no" wrongdoing all the while denying that they ever have done anything wrong even if they have for ages.
To have a fairer marketplace, it is imperative to remove both practices: spoofing and front-running. I don't care at what speed either of them is executed. Both are against the law of the land. And anyone caught should pay for their crime.
It's the same as in the financial crisis. Few bankers ever got on trial while millions of people lost their jobs, their homes, and their retirement accounts. Even 6 years later, most individual investors have still not totally recovered even with the market at new historical highs while most bankers, on the other hand, are still free and hitting historical compensation levels.
In the end, it is society as a whole that pays the bill for all the misconducts. It's always the people that pay for it all by being cheated left and right by organizations that not only do know the law but know exactly what they are doing. It's not all of them that cheat, but the few that do, do a lot of damage.
Created... April 27, 2015, © Guy R. Fleury. All rights reserved.