Central Banks Probe Bank Exposure to Trading Firms After $15 Billion Jane Street Loss
Central banks in the US and UK have launched an investigation into the exposure of major banks to large trading firms following a significant loss at proprietary trading firm Jane Street. The loss was caused by Jane Street's investment in AI-focused hedge fund Situational Awareness, which was forced to sell most of its public equities portfolio after a sharp selloff in AI and chip stocks in July.
The US Securities and Exchange Commission had already subpoenaed Wall Street banks last month, examining the trading activity and use of leverage by Situational Awareness following its near-collapse. The central banks' investigation seeks information on the risk appetite of these trading firms, how banks' exposure to them evolved throughout the trading day, and how risk controls operated.
The probe comes after Jane Street lost roughly $15 billion in July, particularly through its investment in Situational Awareness and other technology holdings. The Bank of England and the US Federal Reserve declined to comment on the matter.