It wasn’t a hedge fund, a proprietary trading desk at an investment bank or a rogue trader that may have been the key trigger behind the “flash crash,” one-thousand-point drop in the Dow.

Rather, it may have been a futures index trade by none other than Overland Park, Kan.,-based Waddell & Reed, according to reports.

A Chicago Mercantile Exchange document showed a 2:30 p.m. trade by Waddell & Reed on May 6, and Commodity Futures Trading Commission Chairman Gary Gensler testified before Congress last Tuesday that a single futures trader on May 6 accounted for 9% of the volume in the 500 e-mini Futures Contract, which bets on the direction of the Standard & Poor’s 500 and is the most actively traded stock index derivative contract.

Without naming the trader or their affiliation, Gensler told Congress: “One of these accounts was using the e-mini contract to hedge and only entered orders to sell. That trader entered the market at around 2:32 and finished trading by around 2:51.”

Waddell & Reed released a statement to The New York Times confirming it traded stock index futures that day as a hedging technique—but denying those trades set off the downward spiral in the Dow: “On May 6, as on many trading days, Waddell & Reed executed trading strategies, including index futures contracts, as part of the normal operation of our flexible portfolio funds. Like many participants, Waddell & Reed was affected negatively by the market activity of May 6.”

The CME and CFTC declined to comment to NYT.

 

 

Register or login for access to this item and much more

All Financial Planning content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access