Tuesday 18 May 2010

Broker blamed for Dow crash

A Kansas-based stockbroker may have contributed to the “flash crash” that wiped $1 trillion off US stock markets at the beginning of the month.

On May 6, Waddell & Reed placed a large sell order for a group of stock futures that regulators believe may have contributed to the short but shocking market crash. The flash crash briefly wiped 1,000 points off the Dow Jones — its biggest intra-day trading drop — before the index regained much of the lost value.

Speculation initially focused on human error — known as a “fat finger” trade — with rumors that someone had typed billions instead of millions into an order. Regulators have discounted that story.

They are now targeting computer-generated high speed trading and heavy trading in “E-minis”, future contracts used to bet on the performance of the stock market index.

Waddell sold a large order of E-minis during a 20-minute span that corresponded with the plunge, according to a document obtained by Reuters. Waddell said it was one of about 250 investors trading E-minis on the day in question.
 
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