How a Trading Algorithm Went Awry

The eagerly awaited report on the causes of the May 6 "flash crash" portrayed a market so fragmented and fragile that a single large trade could send stocks into a sudden spiral.

The report, released by federal regulators on Friday, went further than many in the market had expected by pinpointing one trade by a mutual-fund company as a key contributing factor to the market's plunge.

Regulators say that the firm— which was Overland Park, Kan.-based Waddell & Reed Financial Inc., according to people familiar with the trading—chose to sell a big number of futures contracts using a computer program that essentially ended up wiping out available buyers in the market.

A spokesman for Waddell refused to comment beyond the firm's previous statement from May, in which the firm said it doesn't intend to "disrupt" markets through its trading.

Read Full Article from Wall Street Journal

- Posted: 2010-10-01 20:44:06

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