A mutual fund firm finds itself being blamed in the media for helping trigger the stock market 'flash crash' on May 6. Waddell & Reed issued a statement today insisting that its index futures trading that afternoon was not to blame for what happened and noting that Waddell itself was hurt by the plunge.
Reuters' Herbert Lash and Jonathan Spicer report that, according to a document from the Chicago Mercantile Exchange, it was Waddell who accounted for nine percent (75,000) of the e-mini contracts sold during the critical 20 minute period. Yet Gary Gensler, chair of the U.S. Commodity Futures Trading Commission, said that there was no evidence that the trader in question (i.e. Waddell) did anything wrong or was anything other than a "bona fide hedger."
Waddell called the trades "part of the normal operation" of its "flexible portfolio funds" and noted that more than 250 other firms also traded the e-mini in question during the same time period.
Yet Waddell's statement was not enough to save it from suffering in the markets in the wake of the news; the firm's shares fell 5.31 percent today to close at $32.25.
The news spread quickly around the net. Here are a few headlines:
Bloomberg, "Waddell & Reed Says It Didn't Mean to Disrupt Markets";
and Wall Street Pit, "Money Manager Waddell & Reed is Mystery Trader in Market Crash".
Company Press Release
OVERLAND PARK, Kan., May 14, 2010 -- In response to inquiries and published reports, Waddell & Reed Financial, Inc. today issued the following statement:
On May 6, as on many trading days, Waddell & Reed executed several trading strategies, including index futures contracts, as part of the normal operation of our flexible portfolio funds. Such trades often are executed in response to market activity, and are undertaken to protect fund investors from downside risk. 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.
Quotes attributed to executives at the CME and the CFTC note that Waddell & Reed has executed trades of this size previously, and indicate that we are a "bona fide hedger" and not someone intending to disrupt the markets. Further, CME noted that they identified no trading activity that contributed to the break in the equity market during this period. Like many market participants, Waddell & Reed was affected negatively by the market activity of May 6.
About the Company
Waddell & Reed, Inc., founded in 1937, is one of the oldest mutual fund complexes in the United States, having introduced the Waddell & Reed Advisors Group of Mutual Funds in 1940. Today, we distribute our investment products through the Waddell & Reed Advisors channel (our network of financial advisors), our Wholesale channel (encompassing broker/dealer, retirement, registered investment advisors as well as the activities of our Legend subsidiary), and our Institutional channel (including defined benefit plans, pension plans and endowments, as well as the activities of ACF and our subadvisory partnership with Mackenzie in Canada).
Through its subsidiaries, Waddell & Reed Financial, Inc. provides investment management and financial planning services to clients throughout the United States. Waddell & Reed Investment Management Company serves as investment advisor to the Waddell & Reed Advisors Group of Mutual Funds, Ivy Funds Variable Insurance Portfolios, Inc. and Waddell & Reed InvestEd Portfolios, Inc., while Ivy Investment Management Company serves as investment advisor to Ivy Funds, Inc. and the Ivy Funds portfolios. Waddell & Reed, Inc. serves as principal underwriter and distributor to the Waddell & Reed Advisors Group of Mutual Funds, Ivy Funds Variable Insurance Portfolios, Inc. and Waddell & Reed InvestEd Portfolios, Inc., while Ivy Funds Distributor, Inc. serves as principal underwriter and distributor to Ivy Funds, Inc. and the Ivy Funds portfolios.