Trader Algorithm Cited in 'Flash Crash'

Susan Hall

Federal regulators are blaming a large trader's algorithm for the May 6 "flash crash" in which a huge sell-off of blue-chip and other stocks prompted a 700-point plunge in the Dow, which then recovered, all in about 20 minutes.

 

A report from the Securities and Exchange Commission and Commodity Futures Trading Commission does not identify the trader, but The Wall Street Journal and other news organizations say it was Kansas mutual fund Waddell & Reed.

 

Reuters calls the crash:

an unprecedented breakdown that exposed deep flaws in the electronic marketplace now dominated by high-frequency trading.

New York magazine explains the "e-mini" futures contracts being executed and says it wasn't an accident:

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


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