This morning, S&P futures...

...dipped briefly below the low made on May 6 in what has since become known as the "flash crash." Speculation on the "culprit" for the crash has centered on Kansas-based Waddell & Reed. It's been reported that on that day, Waddell sold 75,000 e-mini futures contracts in an effort to hedge against the risks stemming from the European sovereign debt crisis. That equates to 15,000 "big" contracts (for you old-timers), and in my days on the CME trading floor that would have been considered a sizable order. The big firms down there--like Goldman or Morgan Stanley--in an effort to minimize market impact, would have taken all day to fill an order like that. But times have changed, apparently, as 5.7 million e-minis traded that day. That means that Waddell's order was only a little over 1 percent of the day's overall trading volume. In a letter to its advisers, Waddell said:

“We believe that trades of the size we initiated normally are absorbed easily in the market,” estimating it was one of 250 firms engaging in e-mini trading during the market selloff.

The Chicago Mercantile Exchange has said all Waddell’s e-mini sales took place between 2 p.m. and 3 p.m., the period of the flash crash when 1.6 million total e-mini sales occurred.

Waddell said the behavior of both the e-mini’s price and bid/ask spread “do not suggest that our trades had a disruptive effect.” The bid/ask spread widened during the firm’s trading for less than one second, the firm said.

“The e-mini rallied during our trade, suggesting it was not causing the price movement,” the firm said.

So what happened on that day? I'm not sure anyone knows just yet, but my hunch is that the electronic market makers--or high frequency traders--took the other side of Waddell's order and then went about hedging their risk. And then it sounds like what happened was that the NYSE's computers were overwhelmed and the high frequency traders' orders had to be rerouted to less liquid exchanges where the stock price of companies like Accenture fell briefly below a dollar a share. Once this selling pressure abated, the market drifted back to a more reasonable level.

So who is to blame for the flash crash on May 6? Waddell? Not after reading their explanation of what happened. I would have thought that they had acted recklessly for sending such a large order, but I guess it wasn't so large after all. The high frequency traders? Not really. They were just hedging their risk; that's what they do. The NYSE, for having computers that were ill-equipped to handle the volume? No. The investing public should know by now that the NYSE is a technological backwater. The secondary exchanges, for their lack of liquidity? Again, no. Everyone should know that.

So who, then, is at fault? Nobody? Perhaps. Given this morning's price action, maybe Waddell wasn't wrong after all, just early. Maybe the market makers got run over. It happens sometimes; trading isn't a risk-free endeavor. (Just ask anyone who's ever scalped a Cubs ticket. The ones for games in September don't always hold their face value.)

So what should happen to all those crazy prices that traded that day? I say: leave 'em. Again, Waddell wasn't wrong, just early. If the market-makers got beat up, oh well. But won't that cause investors to lose confidence in the market? Not if they have a long-term perspective, and by long-term I mean more than a few minutes. Because by the time the typical investor even heard about the flash crash, it was over and the price of his stocks had returned to levels more in keeping with the fundamentals.

So hats off to Waddell, I say. You guys called this break pretty well.