Flash Crash

Vaughan, a Bloomberg journalist, wrote about Navinder Sarao, the trader who operated alone from his parents' house in west London and who was arrested in 2015 and charged in connection with the May 2010 flash crash.

The factual narrative covers Sarao's career: learning to trade at an arcade, developing an unusual ability to read the order book in the stock index futures market, moving to trading from home, earning tens of millions of pounds, and using custom software to place and cancel large orders. The charge was spoofing, meaning placing orders with no intention of executing them in order to create a false impression of supply or demand and to move the price, then trading against the movement created.

The analytical question the book addresses is whether Sarao caused the flash crash, in which American equity indices fell around nine per cent and recovered within minutes. Vaughan is careful here. Sarao's orders were active that day and the Justice Department charged him in connection with it, but most market structure analysts and the official reports attribute the crash to the interaction of a large automated sell order with high-frequency market makers withdrawing liquidity, in a fragmented market structure where no participant was obliged to make prices. Vaughan presents both the charge and the technical scepticism about it.

The secondary narrative concerns what happened to Sarao's money: he was persuaded into investments and structures that lost nearly all of it, and he cooperated with prosecutors and received no custodial sentence.

The book is well reported and the market structure explanation is accurate. Vaughan avoids claiming more than the evidence supports about causation, which distinguishes it from the coverage at the time of the arrest.