US and UK Central Banks Investigate Banks’ Exposure to Trading Firms

The US Federal Reserve and the Bank of England have approached global banks for information about their exposure to large trading firms, the Financial Times reported on Monday. This inquiry follows notable losses incurred by Jane Street, a proprietary trading firm, in July.

Jane Street reportedly experienced losses of around $15 billion during July, with much of the loss attributed to its investments in an AI-focused hedge fund, Situational Awareness, and in technology stocks. The Situational Awareness fund, managed by Leopold Aschenbrenner, a former OpenAI researcher, was compelled to liquidate most of its public equity holdings to Citadel Securities following a sharp decline in AI and chip stocks.

According to the Financial Times, central banks are collecting details on the risk appetite of trading firms, how banks’ exposures shifted throughout the trading day, and the effectiveness of risk controls. The report cites individuals familiar with the inquiry.

Reuters stated it could not immediately verify the Financial Times’ report. Both the US Federal Reserve and the Bank of England declined to comment, and Jane Street did not respond to Reuters’ request for comment.

Last month, the US Securities and Exchange Commission issued subpoenas to several Wall Street banks, such as Goldman Sachs, JPMorgan, Citigroup, and Bank of America. These subpoenas are part of an investigation into the trading practices and leverage used by Situational Awareness, along with its communications with lenders and the trades that led to margin calls.