A financial trader who played the world’s futures markets from a small suburban house in Hounslow, west London, has been arrested and faces extradition to the US after supposedly making $40m (£27m) for his alleged role in the so-called “flash crash” of 2010.

The US Department of Justice (DoJ) said on Tuesday that it was seeking the extradition of Navinder Singh Sarao, 37, who it claims “spoofed” financial markets using commercially available trading software to place $200m of false trades from his home in Hounslow.



The US agency added that Sarao’s supposed manipulation contributed to the flash crash on 6 May 2010, when the Dow Jones industrial average plunged 600 points in five minutes and created havoc on Wall Street.

Sarao is expected to appear in custody at Westminster magistrates court on Wednesday. He is accused of duping the market into believing there were a lot more sellers than there really were and profiting from the market movement. He is said to have changed his orders more than 19,000 times before cancelling them. The episode, although not attributed to him, formed the backdrop for the Robert Harris novel The Fear Index.

A DoJ spokesman would not speculate on how one person, using widely available commercial software, might have been able to crash the world’s financial markets. Nor would he comment on how an individual, who appears to live in a street populated by unremarkable three-bedroom semi-detached houses, seemed to make such huge rewards from his alleged scheme.



However, the US regulator, the Commodity Futures Trading Commission, said Sarao and his company had profited by more than $40m. The DoJ detailed a series of supposed coups, including episodes where Sarao is said to have made profits of more than $820,000 during a day’s trading.

In an affidavit published by the DoJ in support of its complaint, FBI special agent Gregory LaBerta said Sarao was “a futures trader who operated from his residence in the United Kingdom and who primarily traded through his company, Nav Sarao Futures Limited.

“On numerous occasions between at least in or about April 2010 and in or about April 2014, Sarao spoofed the market and manipulated the intra-day price for … S&P 500 futures contracts on the Chicago Mercantile Exchange, including on or about 6 May 2010, when the US stock markets plunged dramatically in a matter of minutes in an event that came to be known as the ‘Flash Crash’.”



The DoJ added: “By allegedly placing multiple, simultaneous, large-volume sell orders at different price points – a technique known as ‘layering’ – Sarao created the appearance of substantial supply in the market … When prices fell as a result of this activity, Sarao allegedly sold futures contracts only to buy them back at a lower price.”

The agency said Sarao had been charged in a federal criminal complaint in the northern district of Illinois with one count of wire fraud, 10 counts of commodities fraud, 10 counts of commodities manipulation and one count of spoofing, a practice of bidding or offering with the intent to cancel the bid or offer before execution.



Sarao could not be contacted by the Guardian on Tuesday, and there was no answer at the house where he is understood to live with his parents. Neighbours said the family have lived in the quiet suburban street in Hounslow for many years. Residents in the street said they saw around 20 people going in and out of the house on Tuesday morning, and an unmarked police car parked outside.



A neighbour, who asked not to be named, said: “I was taking my son to school this morning at around 8.15am and then I saw around 10 people in their front garden. I saw the mother who lives there walk over from her other son’s house, who lives across the road. She didn’t look very happy. And I saw an unmarked police car with plainclothed officers inside. The family keep themselves to themselves.”



Another neighbour, who also asked not to be named, said: “A neighbour told me they saw around 20 people coming in and out of the house, and police cars.”



The affidavit released by DoJ officials detailed some of the replies Sarao is said to have given to regulators when contacted about his trades.

In 2014, he explained his successes to the Financial Conduct Authority by saying “he had always been good with reflexes and doing things quick”. He also apologised to the Chicago Mercantile Exchange and his broker in March 2010 after placing a large number of cancelled orders, which he said occurred after he had been demonstrating to a friend what was done “by the high-frequency [trading] geeks”.

In another response to an effort to contact him in May 2010, Sarao is said to have emailed his broker to say that he had “just called” the Chicago exchange “and told ’em to kiss my ass”.

The flash crash happened at 2.45pm on 6 May 2010 – the date of the last general election. Wall Street was concerned about the looming debt crisis in Greece and the Dow Jones index was already down by about 300 points, only for markets to fall further – about 600 points in five minutes.

It was the biggest intra-day decline in Wall Street history, although most of the loss was regained within 20 minutes. There were several theories about its cause, from a single fat-finger trade, to the machinations of high-frequency traders and a computer glitch.