Kansas Mutual Fund Caused Flash Crash

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Aw, shucksPhoto: MGM

Remember back in May, when a huge sell-off of blue-chip and other assorted stocks caused the Dow to plunge 700 points, then recover, all in around twenty minutes? At the time, everyone suspected that the "flash crash" was caused by some oaf who had punched a wrong number into the computer, probably at Citigroup, because, well, look at them. In fact, it was Waddell & Reed, a mutual-fund manager out of Kansas that manages about $48 billion from mom-and-pop investors, sources tell Bloomberg and Reuters, citing an upcoming regulators' report. Apparently, it was their selling of a huge number of "e-mini" futures contracts — contracts that are around one-fifth the size of normal ones that were basically made for small or independent investors and not huge firms — that caused the event.

And it wasn't something they did by accident:


Roger Hoadley, a spokesman for the Overland Park-based company, said its traders were “merely trying to manage downside risk in our portfolios.”

Downsizing risk, destabilizing the already shaky financial system. All in a day's work!

Report to say Waddell stoked flash crash -source [Reuters]
Waddell & Reed Shows Long-Term Investor Can Unhinge Wall Street [Bloomberg]