US Fed, Bank of England Intensify Oversight of Bank Exposure to Trading Firms
Central Banks Scrutinize Bank Relationships with Trading Firms
Background: Turmoil at Hedge Fund Situational Awareness
Sept 21 (Reuters) - The Bank of England and the US Federal Reserve are asking global banks about their exposures to large trading firms after turmoil at hedge fund Situational Awareness caused large losses at Jane Street, the Financial Times reported on Monday.
AI-Focused Fund's Impact on Market
The AI-focused fund, run by former OpenAI researcher Leopold Aschenbrenner, was forced to sell most of its public equities portfolio to Citadel Securities after a sharp sell-off in AI and chip stocks. This contributed to Jane Street taking a $15 billion hit that month.
Regulatory Inquiry and Risk Assessment
Central Banks' Information Requests
The central banks are now 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.
Official Responses
Reuters could not immediately verify the report. The US Federal Reserve, the Bank of England and Jane Street did not immediately respond to a Reuters request for comment outside of business hours.
SEC Investigation into Wall Street Banks
Subpoenas and Focus Areas
Last month, the US Securities and Exchange Commission subpoenaed Wall Street banks, including Goldman Sachs, JPMorgan, Citigroup and Bank of America. 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)
