Lone money manager may have sparked (stock market) plunge

[sabra]

Source: MSNBC/Reuters

Reuters: Document shows money manager sold a large order of contracts

NEW YORK - A big mystery seller of futures contracts during the market meltdown last week was not a hedge fund or a high frequency trader as many have suspected, but money manger Waddell & Reed Financial Inc, according to a document obtained by Reuters.

Waddell sold on May 6 a large order of e-mini contracts during a 20-minute span in which U.S. equity markets plunged, briefly wiping out nearly $1 trillion in market capital, the internal document from CME Group Inc said.

Regulators and exchange officials quickly focused on Waddell's sale of 75,000 e-mini contracts, which the document said "superficially appeared to be anomalous activity."

Gary Gensler, chairman of the Commodity Futures Trading Commission, said in congressional testimony 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.

Read more: http://www.msnbc.msn.com/id/37151233/ns/business-stocks_and_economy/

[Warren Stupidity]

1. he must be very busy

as even if one removes that one day anomaly, the market has been in a pretty solid plunge for the last month or so.

[Unfortunately]

2. Fail.

That just seems slightly idiotic on their part. You'd think they'd spread it out more or something to be less obvious. Who is going to entrust their financial well-being to a money manager responsible for 'briefly wiping out nearly $1 trillion in market capital'? >_<

[DLnyc]

11. Or crazy like a fox

If your goal is to move the market down 1000 points, unload a huge basket of put options, buy a shitload of calls, then sell the calls when the market realizes false alarm and moves back up 500 points, then not really idiotic. One percent of $1 trillion nets him $10 billion. He spends $1 billion on a couple of large law firms to tie the SEC up in knots for the next 20 years, buys a small island or country somewhere, and retires to a pleasant and peaceful life (provided that, like most people in the business, he isn't handicapped by any silly thing like a conscience).

[Dr.Phool]

3. Was his name Oswald?

[leveymg]

4. So, why focus on this little guy ? Look at who sold the other 91 percent - JP Morgan, Goldman

The CME document shows that during the sell-off and subsequent rally, other active traders in e-minis included Jump Trading, Goldman Sachs , Interactive Brokers, JPMorgan Chase and Citadel Group.

During the 20-minute period, 842,514 contracts in e-minis were traded while Waddell from 2 p.m. to 3 p.m. traded its contracts, CME said. The CME document did not provide a break-out of Waddell's trading during the crucial 20 minutes.

. . .

Waddell's contracts were executed at Barclays Capital and later given up to Morgan Stanley, according to the document.

CME said it spoke to representatives from both banks on May 6 and planned to speak to Waddell representatives the following day. The firm oversaw $74.2 billion in assets as of March 31.

Morgan Stanley told CME that it "did not have concerns regarding the activity," the document said, because Waddell "would typically use equity index futures to hedge macro market risk associated with the substantial long exposure of its clients."

[skippy911sc]

7. I gues they found the scape goat.

The trade this person made sparked a computer to go balls out on the sell side and push the market down 1000 points. Why did the computers do this and where was there back stop? This shows how fragile the markets are and how computers should be removed from the system of trading.

[BR_Parkway]

8. And all of this techo-jargon actually produces what exactly? Moving

a bunch of computer bits around to create "wealth"? I feel old, old enough to remember when wealth was actually a tangible thing - not a bunch of equity index futures

[Downwinder]

5. Comforting to know that a single small trader can destabilize

the market. Makes one wonder what a major wealth fund could do.

[mopinko]

6. there are automatic trading orders out there set to jump on mistakes

called predatory orders. common things.

[Dover]

9. Did anyone profit from this plunge? n/t

[Devil_Fish]

35. Yes, the people who bought when it was at the bottom.

it then sprang back 500 points. I wish I was one of thouse people who bought at the bottom of the curve.

[PassingFair]

10. Put an APB out for THIS guy...he's your perp...

[Javaman]

12. Frankly, I think there was second manager...

in the building behind the glassy cubicle.

That was one magic plunge.

[mikita]

13. another magic bullet, one guy theory n/t

[Omaha Steve]

14. Kansas Mutual Fund Identified as Trader in Market Plunge

Source: NY Times

By NELSON D. SCHWARTZ

The flash crash on May 6 that transfixed investors — and has been the source of finger-pointing ever since — may not have originated in the canyons of Wall Street or a hedge fund manager’s European lair.

How about Kansas?

Futures trades by Waddell & Reed, a conservative 70-year-old mutual fund based in Overland Park, Kan., have been linked to the plunge, during which the Dow dropped hundreds of points in a matter of minutes.

The company was identified in a Chicago Mercantile Exchange document, according to Reuters.

Read more: http://www.nytimes.com/2010/05/15/business/15trader.html

[RandomThoughts]

15. When have you heard that before.

A problem is caused, like computer trading shaving off profits, and then someone says the problem is not enough computers.

An election is stolen in 2000, and they pay to put in worse election machines to try and steal more elections.

Social unrest from bad policies happens, and they say the fix is to make it harder on society.

A banking crises happens in part because of consolidation, and bonuses go up, and more corporations consolidate.

Lack of demand in economy from dwindling middle class occurs, and they say the fix is austerity programs.

That is downward spiral mentality, and most likely disingenuous. But it is following the system, plugging the data into flawed functions that have the intent of bad not the intent of better things.


It is people seeing the problems, but not wanting to fix them.

[Selatius]

16. A small hedge fund in nowhereville crashed the Dow?

Are we sure this hedge fund isn't just a fall-guy?

[Yupster]

17. I don't think Waddell and Reed has hedge funds

They're just a plain old mutual fund company, the kind people put $ 100 a month in.

[Selatius]

20. Well, even then, a small mutual fund crashed the Dow?

I mean, is that what they're really saying?

[Coyote_Bandit]

21. NOT a hedge fund

Just an old fashioned mutual fund.

Regular deposits not required.

And some of their funds have performed very well over time.

[A HERETIC I AM]

25. I'm curious, Is it your default position that all unusual market moves are casued by Hedge Funds

Waddell & Reed has been around since 1937, manages 19 different Mutual Funds and has a well respected name.

Shit happens. Just because something unusual happens does not mean it is some nefarious "Hedge fund". A portion of the questionable activity was traced back to a trading desk in the Midwest operated by a firm with $74 billion under management.

A drop in the bucket.

The ridiculous suppositions about what happened in the stock market the other day on this board are amusing, if nothing else.

[murdoch]

18. $1 trillion in wealth wiped out by small Kansas hedge fund?

These stories coming out are rather silly. First a "fat finger" Citigroup person. Then some Kansas hedge fund.

$1 trillion in wealth does not disappear due to these things.

People should feel real confident being in the market - a trillion dollars is wiped out in the blink of an eye and no one knows why.

[Iowa]

26. That's not accurate...

"$1 trillion in wealth wiped out by small Kansas hedge fund?... People should feel real confident being in the market - a trillion dollars is wiped out in the blink of an eye and no one knows why."

Wealth was wiped out only if you sold within that narrow window when the system was affected. There was not a loss of a trillion dollars in wealth... there was simply a short period of time when stocks, in the aggregate, were priced at a trillion dollars less than the day before. Those who didn't sell at those reduced prices lost absolutely nothing.

If you want to see wealth being wiped out, take a look at the sales commissions and annual expense ratios associated with Waddell & Reed's mutual funds.

[howaboutme]

28. Slightly wrong

The markets are controlled by a tiny few. Anyone foolish enough to entrust their savings to the hucksters of Wall Street probably deserve what they got, except those who lost were probably pensions and others who represent many investors who had placed trailing stop loss orders on their holdings. The market was sent into a tailspin by a few who profited, just as they did on 9-11-01.

SL only works with an orderly market. When it is out of control it is not orderly. Those with SL orders were converted to market orders as soon as the SL offer was hit. Then they went market which meant to sell at any price, and caused cascading downward prices because there were no bids. I have never entrusted my savings to Wall Street because I know what they are and what they represent, it is all about skimming from average Americans and the disenfranchised.

[Iowa]

29. Yes and no...

Yes, the system certainly failed those who sold during the chaos (whether via stop-loss or otherwise).

Regarding your apocalyptic attitude toward the markets in general... there are plenty of average, working-stiff investors sitting on small fortunes who would smile politely and silently disagree. Average investors who make money generally don't get into convincing others to do likewise.

When it comes to personal investing there are (in a general sense) only a few right ways to do it, and an almost infinite number of wrong ways - and it takes FAR more time to learn the ropes than most people are willing to devote to it.

[howaboutme]

32. The stock markets

were intended to be a source of capital for the real production economy. Instead they've become a casino for the masses and a mother lode of wealth for the casino owners and related insiders, whose actions strongly encouraged the decimation of the real USA economy.

[howaboutme]

19. Do you believe

any of the propaganda fed to the public?

Remember the many millions in profits from puts and shorts on airlines, etc, that were executed on 9-10 that were eventually allowed to evaporate. The 9-11 Commission served basically a shill cover-up function. They knew who did the trades and they allowed them to remain anonymous. The same will happen on this May 6 crash. They don't want the public to know they are played for real fools by the elite.

[UpInArms]

22. what is interesting is that no one ever was identified as the short seller

on airlines on 9/11

go figure

:shrug:

[musette_sf]

24. I've been thinking the same thing

[howaboutme]

27. And not one with off shore Swiss UBS accounts

were identified either. Why?

That was even though the government knows their identity just as they knew on 9-11 who they were. When a an elite segment of society receives immunity from the press and from government, the rest of us pay dearly.

[proud2BlibKansan]

23. OMG! I live a mere few blocks from Waddell and Reed.

Too creepy :scared:

[DeSwiss]

30. So he's the one who pushed the red button???

Don't Push That Button!!!
http://www.nifter.com/sound_effects/cartoons_animations_sound_effects/loony_toons_characters/daffy_duck/daffy_duck_05_NifterDotCom.wav">

[boppers]

31. The spark is not the fire.

How could one discarded cigarette possibly start a massive forest fire?

That's what people are missing, not that one guy triggered this, but that computerized sub-second trading systems act as powerful accelerants.

[underpants]

33. So there was no oversight? a kingdom can be brought down by one sentry on one post?

even on DU I and others have been called on outrageous statements (actions) with a simple :wtf:

[bemildred]

34. Well, I think it was fairies, or maybe leprechauns.

I remember when I was working as a software engineer and I ran into people calling bugs, i.e. coding errors, "anomalies", like they were random occurrences. This stinks of that mindset. It's the Condi Rice "We expected traditional hijackings" mindset, and it is the mark of mediocre and self-absorbed intelligences.