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

Fed, Bank of England Probe Banks' Exposure After Jane Street's July Losses

Central Banks and Regulatory Scrutiny Following Jane Street's Losses

(Corrects September 21 story, paragraph 2, to say Situational Awareness fund sold most of its public equities portfolio to Citadel, not Citadel Securities)

Background: July Turmoil in Trading Firms

Sept 21 (Reuters) - 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.

Situational Awareness Fund's Forced Asset Sale

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 after a sharp selloff in AI and chip stocks in July. 

Jane Street's Losses and Investment Exposure

Jane Street lost roughly $15 billion that month, particularly through its investment in the hedge fund and other technology holdings.

Central Bank Inquiries and Risk Assessment

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. 

Responses from Involved Parties

Reuters could not immediately verify the report. The Bank of England and the US Federal Reserve declined to comment. Jane Street did not immediately respond to a Reuters request for comment.

SEC Investigation into Wall Street Banks

Last month, the US Securities and Exchange Commission subpoenaed Wall Street banks, including Goldman Sachs, JPMorgan, Citigroup and Bank of America.

Focus of the SEC Probe

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.

Reporting Credits

(Reporting by Abu Sultan in Bengaluru; Editing by Janane Venkatraman and Harikrishnan Nair)