Fed and BoE probe banks' exposure after Jane Street incurs $15 billion loss
U.S. and U.K. regulators are questioning major banks about their ties to large trading firms following a $15 billion hit to Jane Street linked to the collapse of hedge fund Situational Awareness.
The U.S. Federal Reserve and the Bank of England have begun inquiries with global banks regarding their exposure to large trading firms after Jane Street reported a $15 billion loss in July. The loss was tied to the forced sale of most of the public-equity portfolio of AI-focused hedge fund Situational Awareness, which was executed through Citadel Securities following a sharp decline in AI and chip stocks.
Regulators are seeking details on the trading firms’ risk appetite, how banks’ exposure to them changed over the trading day, and how risk-control mechanisms functioned, according to sources familiar with the matter. The Financial Times reported the inquiries, while Reuters could not immediately verify the story and the Federal Reserve, the Bank of England and Jane Street did not respond to requests for comment.
In August, the U.S. Securities and Exchange Commission issued subpoenas to several Wall Street banks, including Goldman Sachs, JPMorgan, Citigroup and Bank of America, to examine Situational Awareness’ trading activity, leverage use, margin-call triggers and communications with lenders.