MutualFundWire.com: Waddell Says 'I Didn't Do It'
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Friday, May 14, 2010

Waddell Says 'I Didn't Do It'


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";

  • Business Insider, "Mystery Market Crasher Revealed: Waddell & Reed";

  • Business Review USA, "Stock mystery solved?";

  • CNNMoney.com, "Waddell & Reed responds to 'flash crash' reports";

  • CNNMoney.com's Fortune blog, "Last week's flash crash catalyzed by one firm?";

  • DealBreaker, "Regulators Focus on Waddell Trade in Market Plunge";

  • FoxBusiness, "Brokerage Waddell & Reed May Have Played Role in Big Selloff;

  • HedgeFund.net, "Big Trade May Have Been Source of May 6 Woes";

  • the Huffington Post, "Waddell & Reed: The Mystery Trader In Stock Market's 'Flash Crash' REVEALED";

  • the Investing Contrarian blog, "Reuters Reports That Waddell & Reed Is Mystery Seller Of 75,000 E-Minis ...";

  • the Jr Deputy Accountant blog, "Blame the Market Plunge on Waddell & Reed Trader";

  • Kansas City Business Journal, "Waddell & Reed: Didn't Mean To Play In Last Week's Market Plunge";

  • the New York Post, "Waddell & Reed revealed as big futures seller during height of meltdown";

  • TheStreet, "New 'Flash Crash' Theory: Report";

  • the Wall Street Journal, "Waddell Is 'Mystery Trader' in Stock Plunge";

  • 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.

    SOURCE: Waddell & Reed Financial, Inc.


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