NEW YORK (Real Money) -- The arrest and extradition request of a 36-year old London trader in connection with the 2010 Flash Crash -- when the Dow Jones Industrial Average lost around 600 points in five minutes and then rebounded -- raises more questions than it answers, for the moment.
Navinder Singh Sarao, who was trading the markets from his family's home in a London suburb under the flight path to Heathrow airport, is presumed innocent until proven guilty. He appeared in a London court on Wednesday and said he was opposed to being extradited to the U.S., where he was charged with 22 criminal counts including fraud and market manipulation.
What took them so long to find him?
This is one of the most important questions in this case. The Flash Crash happened on May 6, 2010, briefly wiping out almost $1 trillion from the market's value. Ever since then, the authorities have struggled to come up with a convincing explanation about what happened.
According to the Department of Justice, Sarao allegedly used an automated trading program to manipulate the market for E-Mini S&P 500 futures contracts (E-Minis) on the Chicago Mercantile Exchange. By allegedly placing multiple, simultaneous and large-volume sell orders at different price points -- a technique known as dynamic layering -- the London-based trader "created the appearance of substantial supply in the market." He is alleged to have modified these orders frequently so that they remained close to the market price, but usually canceled them before execution.