Regulators Focus on Waddell Trade in Market Plunge
We thought Waddell & Reed was swallowed up ages ago by some big bank. But apparently the money management firm is still around. . .and helped to trigger the massive slide in the market last week.
According to an internal CME document obtained by Reuters, Waddell sold 75,000 S&P e-mini futures contracts in a 20 minute span on May 6 during the market crash and subsequent rebound.
Regulators have homed in on the trade, which the document said "superficially appeared to be anomalous activity." Waddell isn’t being accused of doing anything improper and we’re not sure e-mini dump was the true spark that ignited the selloff, but we’ll see what the regulators come up with.
From Reuters:
Gary Gensler, chairman of the Commodity Futures Trading Commission, said in congressional testimony on Tuesday that it had found one sale was responsible for about 9 percent of the volume in e-minis during the sell-off in the U.S. markets.
An order the size of the Waddell contract would be a big trade to execute on a normal day, said a trader whose firm is active in S&P 500 futures market. About 50,000 contracts are typically traded in an hour, the trader said.
"To get rid of 75,000 contracts, that's a lot of trading even if the market is healthy," the trader said. "But when suddenly the market changes and there's not as many bids there to trade with, 75,000 is going to cause quite a shock to the market."
"That's an enormous position for anybody, whether it's a hedge or whether it's a trade. It's a big position, no doubt about it," the trader said.
