Today’s joint Securities and Exchange Commission and the Commodity Futures Trading Commission report discussed the causes of the May 6 Flash Crash in detail.
The most surprising revelation in the report is that a single trade, against a backdrop of high volatility and downward price pressure, seems to have been responsible for the crash.
A firm identified by officials as Waddell & Reed Financial of Kansas attempted to execute an algorithmic sale of 75,000 S&P 500 futures contracts, referred to as E-minis, valued at $4.5 billion, in order to hedge an existing equity position. Â
The algorithm was programmed to sell the E-minis so that the sell volume was to equal 9 percent of the total volume, calculated over the previous minute; however, the algorithm did not specify the sell price or the time frame of the trade.
