The Federal Reserve and the Bank of England have asked global banks about their exposure to large trading firms, following hedge-fund turmoil that cost proprietary trading firm Jane Street roughly $15 billion in July. The Financial Times reports the central banks want to know how that exposure built up during the trading day and how banks' risk controls held.
The Federal Reserve and the Bank of England have asked global banks about their exposure to large trading firms after turmoil at a hedge fund caused large losses at Jane Street in July, the Financial Times reported Monday, according to Reuters.
Jane Street lost roughly $15 billion in July, particularly through its investment in the hedge fund and other technology holdings, the report said. That fund, 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.
Central banks probe risk controls
The central banks are seeking information on the trading firms' risk appetite, how banks' exposure evolved throughout the trading day, and how risk controls operated, the FT report said, citing people familiar with the matter.
Reuters said it could not immediately verify the report. The Bank of England declined to comment, while Jane Street and the Federal Reserve did not immediately respond to a Reuters request for comment outside of business hours.
SEC subpoenas add to the scrutiny
Last month, the US Securities and Exchange Commission subpoenaed Wall Street banks, including Goldman Sachs, JPMorgan, Citigroup and Bank of America, the report said. The regulator is examining Situational Awareness' trading activity following the fund's near-collapse, including its use of leverage.
That review also covers the trades that triggered margin calls and the fund's communications with its lenders.
Source: Economic Indicators News
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