Report: Algorithm Set Off "Flash Crash" Amid Stressed Market
Federal regulators investigating the causes of the May 6 “flash crash” concluded a large trader’s use of a computer trading system to sell futures contracts led to a rapid and sudden selling that triggered additional selloffs in an already unstable market.
According to a joint report from the staffs of the Securities and Exchange Commission and Commodity Futures Trading Commission, the trader chose to use an algorithm to trade the E-mini futures contract, a contract that mimics trading in the S&P 500 stock index. The computer program executed the trade “extremely rapidly in just 20 minutes,” according to the report.
The report found that the trades were initially absorbed by high-frequency traders and others in the market, but soon liquidity dried up for that contract and elsewhere.
The Wall Street Journal and other news organizations have identified the large trader as Waddell & Reed Financial. The report only identifies the trader as a large trader. Waddell has said it didn’t intend to disrupt the market.
