Waddell & Reed Big Mystery Seller In S&P Futures During Market Plunge (WDR)

Reuters is reporting that the big mystery seller in the S&P e-mini futures contract during last Thursday's market plunge was asset management firm Waddell & Reed WDR. Waddell sold 75,000 e-mini contracts during a 20-minute span in which U.S. equity markets plummeted according to an internal CME Group CME document. The sale appeared to be a part of a legitimate hedging strategy for the firm who oversees around $74.2 billion in client assets. The Reuters article says that Morgan Stanley MS, another large player in S&P futures contracts told CME that it "did not have concerns regarding the activity," because Waddell "would typically use equity index futures to hedge macro market risk associated with the substantial long exposure of its clients." According to the chairman of the Commodity Futures Trading Commission, Gary Gensler, the contracts were sold between 2:32 p.m. and 2:51 p.m. at the height of the market plunge. According to one trader, Waddell's order was very large compared to normal standards. Reuters quoted him as saying, "To get rid of 75,000 contracts, that's a lot of trading even if the market is healthy," the trader said. "But when suddenly the market changes and there's not as many bids there to trade with, 75,000 is going to cause quite a shock to the market." "That's an enormous position for anybody, whether it's a hedge or whether it's a trade. It's a big position, no doubt about it," the trader said. Although Waddell's trading activity during the meltdown likely contributed to the slide, it does not seem believable that this single order could be solely responsible for the near 1,000 point intra-day drop in the Dow last Thursday. This appears to be one piece of the puzzle, but other catalysts also must continue to be examined.