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US regulator says 'flash crash' manipulation hard to detect
[CHICAGO] The type of alleged market manipulation by the British trader accused of helping provoke the "flash crash" in 2010 is hard to detect, the chief of the Financial Industry Regulatory Authority said on Friday.
Nonetheless, the alleged abuses were "somewhat surprising"given that his behavior was identified in 2009 but continued for another five years, said Richard Ketchum, chairman and chief executive of FINRA, a self-funded regulator for Wall Street.
Still, Ketchum said he was hesitant to question the goings-on at other regulators. "I won't second guess what happened at the MERC without understanding the facts themselves," said Mr Ketchum, referring to the Chicago Mercantile Exchange, the market that Navinder Singh Sarao has been accused of manipulating from his home outside London.
Mr Ketchum made the comments in Chicago during a panel discussion at the Society of American Business Editors and Writers' (SABEW) annual conference.
Mr Ketchum said the nature of spoofing itself makes the practice difficult for regulators to detect. The manipulation is typically carried out through multiple firms and accounts.
Regulators need to spot the same trading activities "again and again" in order to identify the practice as spoofing, Mr Ketchum said.
The prevalence of spoofing amid algorithmic trading in general is "very low" and "at the very edges," Mr Ketchum said. But it is still done enough that "regulators should care about it," he said.
Spoofing techniques have become more sophisticated during the past five years.
Regulatory measures put in place as a result of the flash crash would make it less likely for manipulative practices to trigger a similar disruption, Mr Ketchum said.
CME Group Inc, which owns the Chicago Mercantile Exchange, denied on Wednesday allegations that the futures markets caused the flash crash. CME said it was prohibited by law from releasing any information on Sarao, who owned a seat on the exchange.