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Reuters Reports That Waddell & Reed Is Mystery Seller Of 75,000 E-Minis; Barclays Fails Flow Trading 101
In an exclusive report Reuters' Matt Goldstein has uncovered the mystery seller of 75,000 E-Mini contracts during the market melt down. And no, it's not Nassim Taleb as previously reported: the culprit for soaking up ES liquidity (if indeed the selling of 75,000 50x S&P equivalents is enough to throw the market into a 10% tailspin): the "hedging" party is small Kansas-based advisor and asset manager Waddell & Reed (yeah, that was our reaction too). This information is based on an internal CME report which has yet to be disseminated to the general public. Yet the biggest question is not why Waddell trade what it did, when it did, but why did Barclays, which executed the trade for Waddell, stuff the massive order into the pipe, without breaking it up into a thousand child orders first. This is borderline criminal negligence, with Barclays basically begging for their "best executions" practices to be front run by every single algo in existence.
As Matt notes:
Waddell sold on May 6 a large order of e-mini
contracts during a 20-minute span in which U.S. equity markets plunged,
briefly wiping out nearly $1 trillion in market capital, the internal
document from CME Group Inc said.
And while hardly the catalyst for the selloff, this transaction represented 9% of the total ES volume traded during the crash.
During the 20-minute period, 842,514 contracts
in e-minis were traded while Waddell from 2 p.m. to 3 p.m. traded its
contracts, CME said. The CME document did not provide a break-out of
Waddell's trading during the crucial 20 minutes.
On the other hand, other parties, such as Jump Trading, Goldman Sachs, Interactive Brokers, JPMorgan Chase and Citadel Group were also actively trading E-Minis: we would love to figure out just how much of their trading was flow, how much was prop, how much was hedging, and how much was a malicious attempt to exacerbate the collapse. We are confident that with Goldman's newfound appreciation of the word "transparency" that Mr. Blankfein will have no problems sharing with the world every trade ticket that Goldman executed in that fateful 20 minutes period. And yes, Goldman can white out the name of the beneficiary party on the ticket... As long as it is not Goldman Sachs itself of course.
Yet going back to the Waddell situation, we are curious why the firm would announce its massive block publicly, fully aware it would be front-run by every algo from here to Timbuktu. Why not just go to Sigma X and find a hidden buyer without moving the market? After all, dark pool advocates will claim, this is the very purpose of dark liquidity. Why not this time? And lastly, despite what other may claim, a $432 million trade forcing a 10% drop in the market would indicate that liquidity is probably 10 times worse than even our worse expectations. Of course, an immediate Fill or Kill with massive broker incentives would force every trader to scramble, especially Lehman-cradle robbers Barclays, which executed the trade for Waddell. The real question becomes why did Barclays stuff the order direct without breaking it up first: this is flow execution 10 1 error. Instead of focusing on Waddell, we hope regulators instead do much more investigation on Barclays' order execution "best practices."
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LOL W&R got a SHITTY fill!
I thought the same thing. They were the patsy at the poker game. I can only imagine the look on the face of whomever saw the trade confirmation.
"Oh shit, what am I going to tell the boss?"
Your right, I believe they where the patsy also. What was so important for them to dump that much and that publicly and also for them to think that this wouldn't be broken up into smaller traunches or front ran. It's because the other saw this and decided that they would push this through as one big trade and front run and short the hell out of the market and blame this guy for the problem. Who after a week just know getting info about. So why would this company sell that much in such a small time. If this was done before it should have dropped the market as much, but I bet those companies back then broke up orders like this to make sure nothing happened.
Yo, ho, ho. Are you sure about that ? What was ES trading for moments later ?
"The real question becomes why did Barclays stuff the order direct without breaking it up first: this is flow execution 10 1 error."
It is hard to do that while at the same time cutting up a line of blow.
"It is hard to do that while at the same time cutting up a line of blow."
LOL
It's all about priorities and it appears the blow is at the head of the line, pun intended. :>)
Why would Barclay's do it? Probably because they've got some Lord-of-the-Flies operation of Twentysomethings over there. Does it give anyone pause that these GS dweebs are always some youngster know nothings like Kaskari or Tourre'?
You mean like every other organization in the country that has the new kids overworking and their work slightly reviewed while management pretends to look for new work opportunities ?
Probably because they've got some Lord-of-the-Flies operation of Twentysomethings over there.
Congragulations Cursive:
a very timely, descriptive, insightful commentary. well done, sir
next week is OpEx. what can they do on Sunday night to avert the black Monday that could be coming?
they can ban short-selling
they can do outright purchases of Euro area bonds (not secondary market)
they can talk 2nd stimulus in US/Europe
they can talk QE2 in US
i am not sure (barring a 300+ point drop today) that they will do anything, and when Monday comes we will see another HUGE wave of selling that forces a Monday night intervention.
any other ideas?
They could take Osama out of his secret prison cell at Tor Prison in Bagram and claim they captured him at long last.
dude:
they let OBL out of prison a long time ago. he's on a golf course in dubai with his posse and a passel of blackwater (XE) bodyguards..............
OBL passed on to his Muslim paradise from kidney failure or Tora Bora attack long before Dick Clark's Rocking New Year Party for 2003.
Probably because they couldn't resist such a sweet opportunity to make a killing both on the crash and the recovery. Sounds like a story right out of Edwin LeFevre's 'Wall Street Stories'.
Questions, questions, questions. Just shut the f**k up and consume. Who the hell do you think you are to question God's work?
<sarcasm off>
Off to purchase more liquor and ammunition as instructed. I AM the New American Consumer!
What is a regulator?
Uh...controls flow...uh...like for oil...oh...nevermind.
That's the question, isn't it? I assume it has something to do with porn but what do I know?
It's a tool to keep you from drowning when you are in over your head. Part of your Self Contained Underwater Bullcrap Apparatus (SCUBA).
They were just trying to get out the door without anyone noticing.
This is a fascinating scoop on the part of Reuters' Mr. Goldstein. A little more proofreading on the part of Zero Hedge's Mr. Durden would have been nice. Also, while it is literally true that Waddell & Reed is "Kansas-based," it would convey a more accurate impression to say that they are located in suburban Kansas City.
Waddell & Reed runs slow, vanilla mutual funds. You can do that from Kansas. This transaction must have been in their Asset Strategy fund, which tries to hedge with futures from time-to-time. Doesn't appear to have worked in the fall of 2008. Maybe they need to get a bit closer to Chicago. Latency is a bitch.
Hey Barclays! How many you got to sell?
If you're small, I take you out!
(if you're big, I'm with.)
Europe is closed, 40 min break is almost over and ACTION !
"Waddell’s contracts were executed by Barclays Capital (BCS) and then passed to Morgan Stanley (MS), according to Reuters’s Herb Lash and Jonathan Spicer."
So what was the fill quality?
This is the tits! I bought some investments in the '80s from W&R, cashed out years ago. Their offices are right up the street, I may stop by to see how things are going.
Too sweet.
Come on dude, do the math correctly.
4.32 billion not 432 million.
dude, 10x margin
Waddell & Reed stock getting punished. They made a statement saying they are legitimate hedgers and not financial terrorists. Sad that $300M can cost $1T in lost market cap. The stock market reminds me of that town in Blazing Saddles. LMAO!!
I wonder if it was someone at W&R who figured out a flaw in the HFT system? Maybe they were trying to game something of their own? HFT programmers must have been working overtime this week in order to fix this little algo-logic (so it doesn't happen again)....
Someone at W&R prob thought HFT was put in an order and then manually take it back out, real quick. They got the fastest typist in the office. Or they thought flash trading was put in an order then drop your pants to the secretary.
I admit to being ignorant of how things work in the trading world, but it seems to me if someone wanted to expose the market as the low-volume algorythmic charade that it is, and knew how to do it, May 6 would be the type of thing they could do.
Conversely, maybe someone was having a bad day and just wanted to do some damage.
Either way, it's starting to look like it could have been intentional. It's just hard to figure out who the 'good guys' (or 'less bad guys') might be.
front running works great on the way up. lol
w&r are the victims here.
Are you two related?
Tyler, unless I can't do math (and I know I can since I got through captcha), it is a 4 billion trade, not 400 million.
422 million in margin required, if you have access to liquidity.
Someone is trying way too hard here. Obvious deflection.
Ah yes, 200 equities and ETFs traded into the pennies because of this mutual fund outfit. Here's the New York Times: 'Kansas Mutual Fund Is Linked to Market’s Plunge' http://www.nytimes.com/2010/05/15/business/15trader.html?partner=rss&emc...
Move along then -- just some outfit the public's never heard of -- nothing to see here, no lessons to be learned.
It will be interesting to know GS's trading results for the next quarter. If they are still batting 100% then we know that they had prior knowledge or it was an orchestrated crash (which I believe it was). After getting shocked once, the second time isn't so surprising.
ScapeGoat - CNBC will eat it up!
Behind the scenes, the banks have the market, economy and Washington by the balls.
The March 2009 bear market rally ended last week.
http://tinyurl.com/39ptoac
http://www.zerohedge.com/forum/latest-market-outlook-1