June 28, 2022

SEC Report Identifies the Cause of May’s Market ‘Flash Crash’

New York Stock Exchange

May 6th Flash Crash Cause Identified

The massive “flash crash” that caused a brief panic on Wall Street on May 6th has been explained. Although initial speculation was that the short-lived 1,000 point plunge in the Dow was the result of a bumbling trader, federal regulators have found that it was the result of an enormous sell-off.

A mutual fund, using automated trading software, was responsible for causing the scare when it started  selling off futures contracts valued at $4.1 billion, according to an SEC report.

Traders were already stressed by the escalating Greek debt crisis so that the unexpected sell-off frightened investors who quickly pulled their money out of the stock market.

Approximately $1 trillion in market value vanished within just a few minutes.

At the end of the days trading, the market had generally recouped the massive losses. A rapidly spreading rumor claimed that the panic was the result of a trader accidentally pressing a B key instead of an M initiating a Procter and Gamble transaction worth $16 million as $16 billion deal. .

The SEC report said that the brief crisis was the result a single, huge transaction.

The report raises questions about the dangers of working with high-speed electronic trading systems that could result in a rapid financial melt-down.

The specific mutual fund remained unnamed in the SEC report. However, officials have since revealed that it was a Kansas based fund, Waddell & Reed Financial.

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