In a long-awaited report on one of wildest days in Wall Street’s history, regulators said that the automated sale of a large block of futures by a mutual fund — not named in the report, but identified by officials as Waddell & Reed Financial, of Overland Park, Kan. — touched off a chain reaction of events on May 6. The Dow Jones industrial average plunged more than 600 points in a matter of minutes that day and then recovered in a blink.
The finger-pointing and speculation that followed — Were high-speed traders behind it? A rogue computer program? Financial terrorists? — captivated Wall Street. But in the report released on Friday, the authorities said they found no evidence of market manipulation. Instead, the temporary crash resulted from a confluence of forces after a single fund company tried to hedge its stock market investment position legitimately, albeit in an aggressive and abrupt manner.
The mutual fund started a program at about 2:32 p.m. on May 6 to sell $4.1 billion of futures contracts, using a computer sell algorithm that over the next 20 minutes dumped 75,000 contracts onto the market, even automatically accelerating its selling as prices plunged.