Our Terms of Service and Privacy Policy have changed.

By continuing to use this site, you are agreeing to the new Privacy Policy and Terms of Service.

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

Overnight Avg Rate Latest Change Last Week
30 yr fixed3.88%3.98%
15 yr fixed3.02%3.03%
5/1 ARM3.07%2.95%
30 yr refi3.99%4.09%
15 yr refi3.12%3.13%
Rate data provided
by Bankrate.com
View rates in your area
 
Find personalized rates:
Index Last Change % Change
Dow 17,550.69 -47.51 -0.27%
Nasdaq 5,105.55 -9.83 -0.19%
S&P 500 2,093.32 -4.72 -0.22%
Treasuries 2.21 0.06 2.84%
Data as of 10:34pm ET
Company Price Change % Change
Apple Inc 114.64 -3.80 -3.21%
Baxter International... 40.31 0.80 2.02%
Bank of America Corp... 17.80 0.03 0.17%
Baxalta Inc 37.10 3.95 11.92%
Frontier Communicati... 5.25 0.10 1.94%
Data as of 4:02pm ET

Sections

The company's movie studios went up 13% thanks in large part to "Avengers: Age of Ultron." More

Facebook patented a technology to allow lenders to survey your friends' credit scores and use them to approve or reject your loan application. More

Candle-Lite is committed to manufacturing in America -- which is a good thing because it contributes more than $300 million to Ohio's economy. More

You can't blame it on the economy anymore. More Millennials now have jobs, but are still living at home. More