Waddell & Reed responds to 'flash crash' reports

By Ben Rooney, staff reporter


NEW YORK (CNNMoney.com) -- Investment firm Waddell & Reed responded Friday to a media report that it placed a large sell order for certain stock futures that regulators believe may have contributed to last week's brief-but-historic stock market crash.

In what has come to be known as the flash crash, the Dow Jones industrial average plunged 1,000 points -- the biggest intra-day trading drop ever -- on May 6, briefly erasing $1 trillion in market value, before regaining much of the lost ground.

While the ultimate cause of the collapse remains unknown, regulators have focused their investigation on a sharp drop in the value of a stock future called the E-mini S&P 500, which investors use to bet on the future performance of stocks in the broad stock index.

Waddell, an asset management and financial planning company based in Overland Park, Kan., sold a large order of E-mini futures contracts during a 20-minute span that corresponded with the plunge, according to a document obtained by Reuters.

In a statement, Waddell said it was one of possibly 250 other investors trading the E-mini futures contract on the day in question.

"On May 6, as on many trading days, Waddell & Reed executed several trading strategies, including index futures contracts, as part of the normal operation of our flexible portfolio funds," the firm said in a statement.

Waddell added that such trades are used to protect investors from potential losses, adding that the firm is a "'bona fide hedger' and not someone intending to disrupt the markets."

"This is a longstanding and well-monitored practice in certain of our investment portfolios," said Waddell.

Waddell (WAD) shares fell 5% to $32.38 Friday.

Gary Gensler, chairman of the Commodity Futures Trading Commission, said in congressional testimony Tuesday that regulators were focusing on one particular trader in the market for E-mini futures as part of the commission's investigation into the flash crash.

Gensler said the trader in question entered the market at around 2:32 p.m. ET on May 6 and finished trading by around 2:51 p.m. ET. He said this trader and others had executed hedging strategies of similar size previously.

A spokesman for the CFTC said the agency has no comment on the report.  To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Overnight Avg Rate Latest Change Last Week
30 yr fixed3.94%3.91%
15 yr fixed3.05%3.07%
5/1 ARM3.05%3.14%
30 yr refi3.94%3.97%
15 yr refi3.10%3.12%
Rate data provided
by Bankrate.com
View rates in your area
 
Find personalized rates:
Index Last Change % Change
Dow 18,162.99 121.45 0.67%
Nasdaq 5,106.59 73.84 1.47%
S&P 500 2,123.48 19.28 0.92%
Treasuries 2.14 -0.00 -0.09%
Data as of 6:51am ET
Company Price Change % Change
Bank of America Corp... 16.74 0.24 1.45%
Michael Kors Holding... 45.93 -14.66 -24.20%
Broadcom Corp 57.16 10.24 21.81%
Apple Inc 132.04 2.42 1.87%
AbbVie Inc 67.38 1.28 1.94%
Data as of May 27

Sections

An overwhelming majority of bank customers said in a recent survey that they'd switch to another firm if their account was hacked. More

Workers with college and graduate school degrees saw their wages fall the most last year. The least educated saw a slight bump in pay. More

Apple's new "CarPlay" system, which allows drivers to use iPhones behind the wheel, is raising concerns among auto safety experts. More

Karlos Dansby, a linebacker with the Cleveland Browns, is bringing his winning strategy from the football field into the startup arena. More

Wealthy millennial women are more likely to make at least as much -- if not more -- than their husbands, and are more likely to be the dominant decision-makers on household finances and investments, according to a new report. More