The circumstances surrounding the arrest of Navinder Sarao for his actions related to the Flash Crash have been covered widely, but there is one angle that seems to be slipping through the cracks: Sarao’s intent. Or more precisely, his lack of intent.

Considering the volume of trade orders Sarao is alleged to have placed and then canceled, it seems likely his intention was to manipulate the market. And if Sarao ever stands trial and it is proven that he was “spoofing” or manipulating the market in some other way, then he should be punished accordingly.

However, I find it hard to believe Sarao woke up on the morning of May 6, 2010, and said to himself, “Today I am going to crash the market, drive shares of Accenture to one cent, raise Apple shares to more than $100,000 and then call it a day.” In fact, his actions after the Flash Crash suggest he had no idea his trades played such an allegedly large role in the day’s events. (read more…)

Just wrapped up a week in sunny San Diego covering the SIFMA Ops conference. Hours and hours of great speakers and insights. A few observations:

SEC Commissioner Kara Stein is ambitious: As covered earlier this week on this site, Stein wants to revolutionize the way data is gathered and analyzed at the SEC. She sounds a lot like Scott O’Malia did during his days at the CFTC. O’Malia didn’t bring the CFTC up to speed before he left for ISDA. Given the budgetary and political landscape, the odds seem long that Stein will have any better luck at the SEC before she departs for her next gig.

If Richard Berner shouted in a forest and no one was around, would he make a sound?: Berner and the team at the Office of Financial Research are doing tremendous work. They produce great research and analysis, but I am just not sure how many people are reading it. (read more…)

According to Richard Berner, the director of the Treasury Department’s Office of Financial Research, the financial crisis exposed critical gaps in the data, analysis and policy tools required to ensure financial stability. Berner should know, because his office was created via the Dodd-Frank Act to provide a place where varied research related to financial markets could be collected, studied and shared.

Berner took to the stage this week at the 42nd Annual SIFMA Operations Conference and Exhibition and highlighted one specific initiative he deemed “critical” to enhancing financial stability: the global adoption of legal entity identifiers.

“The global LEI is the cornerstone for financial data standards,” Berner said. “Had the LEI system been in place in 2008, the industry, regulators, and policymakers would have been better able to trace Lehman’s exposures and connections across the financial system.”

As a tool, Berner said LEIs represent a key starting point for the OFR as it works to better understand the complexities of financial markets. (read more…)

SEC Commissioner Kara Stein has no qualms dissecting the role data plays in today’s financial markets. If anything, she seems to be making it her mission to educate anyone who will listen about the conflicting roles data can play in today’s markets: Data can empower beautiful market efficiencies and enhance beastly market disruptions.

“Data revolution represents dramatic changes in securities markets operations,” Stein said Tuesday at SIFMA’s 42nd Annual Operations Conference in San Diego.

Before outlining the data-related initiatives she deems crucial, Stein offered a brief history of the markets, detailing the evolution of market data from the days of the Buttonwood tree to today’s high-frequency trading superhighways. Ultimately, Stein urged caution about the ramifications of analysis and regulation not keeping pace with microwave- and laser-fast markets, noting “The Flash Crash demonstrated that markets had outpaced their keepers.”

Speaking in the shadow of Petco Park, the home of baseball’s San Diego Padres, Stein seemed to touch all the bases in discussing the hottest data-related topics in the operations and technology space:

Legal Entity Identifiers

Stein is a proponent of widespread adoption of Legal Entity Identifiers. (read more…)

A collection of stories from SmartBrief publications and around the web…

JPMorgan software identifies potentially rogue workers: Bloomberg reports on a Reagan-esque initiative at JPMorgan to “trust, but verify” the actions of its employees. Sally Dewar, JPMorgan Chase’s head of regulatory affairs for Europe, is overseeing an algorithmic program that identifies employees who might go rogue. The software considers dozens of factors, including whether an employee violates trading rules or fails to attend compliance classes. “It’s very difficult for a business head to take what could be hundreds of data points and start to draw any themes about a particular desk or trader,” Dewar said. “The idea is to refine those data points to help predict patterns of behavior.”

Treasury Market Practices Group says HFT might be no bueno for Treasurys: High-frequency and other types of automated trading have increased risk to trading Treasurys, according to the Treasury Market Practices Group, which is sponsored by the Federal Reserve Bank of New York. (read more…)