Waddell & Reed ‘did not intend to disrupt markets’

18 May 2010

Waddell & Reed (W&R), a brokerage fund firm, whose trading activity reportedly led to the recent crash in the Dow Jones index, did not intend to “disrupt the markets”.

In a statement, the firm described itself as a “bona fide hedger” and one of 250 firms trading in “e-mini" securities on the day of the market collapse.

Gary Gensler, Commodity Futures Trading Commission chairman, recently told a committee in Congress that one sale was responsible for nine per cent of the day’s trades in these investment products.

Heavy trading in these securities on the Chicago Mercantile Exchange is thought to have been a contributory factor to the rapid decline in the market.

According to documentation obtained by Reuters, W&R sold a large amount of the trades during the same period in which the market crashed.

The firm said: “We use futures trading as part of this strategy, broadly known as hedging. This is a longstanding and well monitored practice in certain of our investment portfolios. We believe we were among more than 250 firms that traded the "e-mini" security during the timeframe the market sold off.”

On May 6th the Dow Jones Industrial Average fell by 1,000 points in what was the biggest fall in its history.

By Jim Ottewill

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