NEW YORK/WASHINGTON, (Reuters) – A computer-driven sale worth $4.1 billion by a single trader helped trigger the May flash crash, setting off liquidity crises that ricocheted between U.S. futures and stock markets, regulators concluded in a report.
Reuters, citing internal documents obtained from futures exchange operator CME Group Inc, identified that trader as money manager Waddell & Reed Financial Inc. The report by the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission did not identify the trader by name.
The long-awaited report focused on the relationship between two hugely popular securities — E-Mini Standard & Poor’s 500 futures and S&P 500 “SPDR” exchange-traded funds — and detailed how high-frequency algorithmic trading can sap liquidity and rock the marketplace.
“The interaction between automated execution programs and algorithmic trading strategies can quickly erode liquidity and result in disorderly markets,” the report said.
The “flash crash” sent the Dow Jones industrial average plunging some 700 points in minutes on May 6, exposing flaws in the electronic marketplace dominated by high-speed trading. The Dow was down nearly 1,000 points at its lowest point on that day.