Eh, a lot of people have 'custom trading software'. Its a question of what you call an 'algorithm', a real algorithmic trading system is something that runs pretty much autonomously, there's no person in the loop. That's what the HFT guys have. At best someone watches a screen and monitors 'risk' or whatever. What Sarao was doing (as far as I can tell) is different. He had TT and some custom code such that he could place orders of certain specialized types. That means that his order management system would manage that order, placing or removing liquidity from the market according to whatever the algorithm and parameters were that governed that order. This is a lot different from HFT, in effect he's manually trading, its just that the 'order' he places can include stop loss mechanisms, take profit mechanisms, varying price levels, 'pegging', whatever. These kinds of things are fairly common, I've developed this type of system for many people and they're not generally considered 'automated trading systems', though they might meet the strict definition of containing/being algorithms in a formal sense.
In any case a lot of what Sarao did was clearly just eyeballing things. He traded on gut instinct, long experience, etc. He was perhaps 'baiting' these HFT algorithms into giving up money to him, but I'm sorry if I cannot see that as a crime. These algos add nothing to the markets, they're parasites, and the people running them don't need protection, they need to be booted out, as Sarao himself repeatedly petitioned the SEC to do!