An investigation by the Securities and Exchange Commission and Commodity Futures Trading Commission has revealed that a single trade by asset manager and financial planner Waddell & Reed helped spark the May 6 “flash crash,” during which the Dow Jones Industrial Average lost around 700 points within minutes, Reuters reports.
Citing a source familiar with regulators’ report on the crash, Reuters said that the SEC will not name Waddell in the report but instead refer to the firm’s trade as “a single trade by an entity.” Reuters had previously named Waddell & Reed as the company behind the May 6 sale of a large number of e-mini futures contracts tied to the S&P 500 index.
Although the SEC report is due out any day now and was expected to be released by October 1, a necessary vote to approve the report before its release may be delayed because two SEC commissioners are traveling today, Reuters said.
Waddell has said that it uses futures like the e-minis to hedge against downside risk in the market, and its trading in index futures on the day of the crash was par for the course. It’s hard to know which would be more unsettling — that the market dove as the result of malicious high-frequency trading activity or that the crash was touched off by a fairly standard trade by a financial advisory firm.