The former boss of so-called flash crash trader Navinder Singh Sarao has revealed the "low-key" city worker had the potential to be "legendary" and believes he did not cause the 2010 crash which wiped billions from the stock market.
“Nav was always going to the kind of person that I believed would be legendary, potentially legendary in some way in the future,” said Paolo Rossi, chairman of Futex, where Sarao worked prior to the flash crash.
He had the potential “to be remembered as being one of the world’s great traders” and if found innocent, will become the "world's superstar trader", Rossi claims.
Sarao was arrested and 22 criminal charges have been filed by US authorities against the trader who is accused of manipulating the US derivatives market. He is fighting extradition and being held in custody with bail set at £5m.
In an interview with Bloomberg Television, Rossi gave a fascinating account of Sarao's time at the firm where the man dubbed the "hound of Hounslow" spent nearly six years.
How it started
Sarao applied to work at Futex, and Rossi said he was one of the firm's early intakes towards the end of 2002.
"He went through our stringent, if you like, testing procedures. We checked obviously his previous records, and he was found to be an honest person according to everything he had on his CV. He passed the numerical tests that we put people through. He passed the intuitive tests that we put people through and he passed the passion test. And the passion test is what do I believe about markets, what do I know about markets and even if you're not actually currently involved in the markets, do you have the passion for the markets, and he passed that test," said Rossi.
Around one per cent of applicants make it, and Singh was one of the 20-25 people a year to be taken on at the firm which paid for his training, signing an initial two-year contract.
Singh was quick at working out risk in a "probability fashion" said Rossi. "Nav was very bright, very dedicated and he was willing to take on risk, and he did take on risk but what's most important is he was able to do it in a probability fashion. Probability fashion means you can work out the probability very quickly of your trade being right or your trade being wrong and if you're able to do that you can become a successful trader."
Not about the money
The 36 year old was a "low-key gentleman" and uninterested in the "money that successful trading can bring in order to spend the money." Rossi called his focus solely on growing his trading account unusual.
"It's unusual and it's almost an eccentricity that he seems to have to himself. A lot of our traders are dedicated to growing their trading account… [so they can spend the money]... Eventually, you've got to haven't you? What's the point of being a Futex trader, making 10 million and then not spending any of it? I think you've got to give yourself a bit of a reward."
Responding to comments made about Sarao by his fellow traders - that he would arrive later to get cheaper train fare and take a late lunch to get discounted sandwiches - Rossi said there were "elements within his personality that he didn't feel the need to spend," but did not talk about the specific details, calling them "too personal".
As to whether Sarao was raking in half-a-million dollars a day, as has been claimed, Rossi said: "The reality if someone is doing over a thousand lots, two thousand lots, five thousand lots, their market exposure is 100 million… it could be a billion. It doesn't take much percentage points move of 500 million or a billion pounds’ worth of position to make the sums that you discuss." He did not comment on claims made by authorities that he made $40m (£26.5m) in five years.
On Sarao's trading style, Rossi said:
"He was and I suspect still is a very good trader making very good money. There are two ways you can trade. You can trade as a follower or you can trade as a leader. When people first come to Futex they have to be a follower to start with. We give then five or ten lots of risks, equating to around a million euros and with that what you can do is follow the market.
As you become a bigger and bigger trader, we have to teach people how to become a leader as a trader and it's a completely different style of trading because as a leader what you can start to do is you can actually influence the markets. I don't mean manipulate the markets and I don't mean you can cheat the markets but if you're putting in a large bid into a market and it's an integrity bid and you're there for it, that will put a break on the market so you can use that to your advantage if you're a big trader and big traders will do that. They will attack their positions and they will defend their positions."
Superstardom or infamy
But there was "absolutely no way" Sarao was cheating the markets, Rossi believes, saying he was just one of "a million things contributing to the flash crash."
"We don't have and never had that kind of bolt-on technology that has been alluded to in these filings. We based our trading, while he was here, and now, based upon good research, good trading decisions, and again I'll go back to that word probability -- understanding the probability of trades being right or wrong."
While Sarao is set for "superstardom" if he is found innocent according to Rossi, if he's found guilty "he'll become just another infamous trader".