arrow flash crashFederal regulators said Friday an algorithm caused the notorious "flash crash" of May 6 when an automated trading system selling futures contracts on the S&P 500 ($INX) triggered a cascade of selling throughout the broader market.

An already turbulent day of trading reached a tipping point at about 2:30 p.m. Eastern when a "large trader" started selling a total of $1.4 billion in futures contracts "as a hedge to an existing equity position," according to a joint report by the Securities and Exchange Commissions and the Commodities Futures Trading Commission.

Regulators didn't name the trading firm but The Wall Street Journal and other media have identified it as Waddell & Reed.

The trader executed its hedging strategy by using an automated execution algorithm, or "Sell Algorithm," regulators said. "When markets were already under stress, the Sell Algorithm chosen by the large trader . . . executed the sell program extremely rapidly in just 20 minutes," regulators said.

Among other findings, the report concludes that under stressed market conditions, the automated execution of a large sell order can trigger extreme price movements.

Heavy selling of S&P 500 futures contracts was a prime suspect in the immediate aftermath of the Flash Crash, a day in which the Dow Jones Industrial Average ($INDU) swung by more than 1,000 points during the session.

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Tonerdeals

why can't the goverment ever admit that the US ecomomy is ******* right now, as it did yesterday also, a year ago and for the next couple of years!!!

October 05 2010 at 5:57 PM Report abuse rate up rate down Reply
farrachy

sorry of my opinion for ALL OF US THAT DONT HAVE THESE OPPURTUNITIES TO BE ABLE TO GET INTO CRAPPOT IDEAS>>>>

October 05 2010 at 4:35 PM Report abuse rate up rate down Reply
farrachy

thanks for the priveleg of giving me the run around as i will someday be doing a great gambling fun around with my own stupid attidude of a wonderful world full of great ideas and then say THIS IS A GREAT WORLD!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

October 05 2010 at 4:28 PM Report abuse rate up rate down Reply
ed

"long-term" investers were not harmed by the flash clash..those of you who chose to sell then are to blame for your losses noone else is.. those of you who use managed accounts where you do nothing but get statements are to blame for your losses..waddell and reed did nothing wrong

October 05 2010 at 3:05 PM Report abuse rate up rate down Reply
mossypond

A clear example as to why such practices should be BANNED from the stock market. Hedge funds, futures, deravitives, etc. are NOTHING more than "make a quick buck" gambling. They do nothing but damage the stock market, businesses, and long term investors. If these gamblers want to make a quick buck, they should be kicked out of the stock market and sent to Las Vegas.

October 05 2010 at 12:00 PM Report abuse +2 rate up rate down Reply
rossplanet

MAKE EVERYONE WHO MADE MONEY RETURN IT. PROBLEM SOLVED. AND YOU'LL NEVER SEE THIS SO CALLED "ALGORITHM" HAPPEN AGAIN.

October 05 2010 at 10:33 AM Report abuse +1 rate up rate down Reply
fillaneed

Clarissa explains it all.

October 04 2010 at 4:45 PM Report abuse rate up rate down Reply
ka

Here's a question... Why is this story on page 3??? Why isn't this big story on page 1? It generated weeks of interest by ALL the media when it happened. The investors were puling like babies... well, at least those not in the important loops. Put your money into cd's at local credit unions. It's an honest return.

October 04 2010 at 2:02 PM Report abuse +3 rate up rate down Reply
Dave

Just another example of how the stock market is rigged in favor of certain players (hedge funds, corporate insiders, etc.).

October 04 2010 at 1:49 PM Report abuse +3 rate up rate down Reply
ruglady55

they should be punished an i should be reimbursed

October 04 2010 at 1:41 PM Report abuse +3 rate up rate down Reply