Kansas Mutual Fund Is Linked to Market’s Plunge
The flash crash on May 6 that transfixed investors — and has been the source of finger-pointing ever since — may not have originated in the canyons of Wall Street or a hedge fund manager’s European lair.
Futures trades by Waddell & Reed, a conservative 70-year-old mutual fund based in Overland Park, Kan., have been linked to the plunge, during which the Dow dropped hundreds of points in a matter of minutes. The company was identified in a Chicago Mercantile Exchange document, according to Reuters.
In a statement, Waddell & Reed said it was among the firms that traded the stock index futures contract suspected of being a crucial link in the cascade of events leading up to the plunge that began shortly after 2:30 p.m.
“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. “Like many market participants, Waddell & Reed was affected negatively by the market activity of May 6.”
On Tuesday, Gary Gensler, the chairman of the Commodity Futures Trading Commission, said at a Congressional hearing that during the crucial time period, a single futures trader, which he would not identify, accounted for about 9 percent of trading volume in the most actively traded stock index derivative contract, known as the 500 e-mini futures contract.
“One of these accounts was using the e-mini contract to hedge and only entered orders to sell,” Mr. Gensler testified. “That trader entered the market at around 2:32 and finished trading by around 2:51.”
Reuters, in an article citing a document from the Chicago Mercantile Exchange, reported that regulators and market officials were focusing on the sale of 75,000 contracts of the 500 e-mini future by Waddell & Reed during the time period in question. The document said the trade “superficially appeared to be anomalous activity,” according to Reuters.
The Chicago Mercantile Exchange declined to comment on Friday’s report about Waddell & Reed, as did the C.F.T.C., which regulates futures trading.
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