Waddell & Reed’s trading algorithm was blamed for helping trigger the 2010 Flash Crash. On May 6, 2010, a large automated sell order in E-mini S&P 500 futures interacted with already fragile market conditions and high-frequency trading.
US stock indexes fell extremely quickly, and the Dow Jones Industrial Average briefly lost about 1,000 points before recovering much of the decline. Individual securities traded at wildly abnormal prices, with some briefly falling to a penny or soaring to implausible levels.
The US Securities and Exchange Commission and Commodity Futures Trading Commission later concluded that the algorithm’s execution strategy contributed to the event, although the crash reflected interactions among many trading systems rather than a single simple cause. Waddell & Reed was an investment management company, not a stock exchange.
The event led to stronger controls, including market-wide circuit breakers, single-stock trading pauses, and improved coordination between futures and equities markets. It also demonstrated that electronic markets can move far faster than human traders can respond.