Fed, BoE probe banks' exposure to trading firms after Jane Street loss, FT reports

The US and UK ​central banks have asked global ‌banks ​about their exposures to large trading firms after turmoil at a hedge fund caused large losses ‌at proprietary trading firm Jane Street in July, the Financial Times reported on Monday.

The AI-focused Situational Awareness fund, run by former OpenAI researcher Leopold Aschenbrenner, was ‌forced to sell most of its public equities portfolio to Citadel Securities ‌after a sharp selloff in AI and chip stocks in July. Jane Street lost roughly $15 billion that month, particularly through its investment in the hedge fund and other technology holdings.

The ⁠central ​banks are seeking ⁠information on the trading firms' risk appetite, how banks' exposure to them evolved throughout the ⁠trading day, and how risk controls operated, the FT report said, citing people ​familiar with the matter. Reuters could not immediately verify the report. The ⁠Bank of England declined to comment. Jane Street and the US Federal Reserve did not ⁠immediately ​respond to a Reuters request for comment outside of business hours.

Last month, the US Securities and Exchange Commission subpoenaed Wall Street banks, ⁠including Goldman Sachs, JPMorgan, Citigroup and Bank of America. It was examining Situational Awareness' ⁠trading activity and use ⁠of leverage following its near-collapse, including the trades that triggered margin calls and the fund's communications with lenders.