Key facts
- The Federal Reserve and Bank of England are asking banks about their exposure to large trading firms.
- Situational Awareness, an AI-focused fund, was forced to sell most of its public equities portfolio.
- Jane Street reportedly incurred a $15 billion loss related to the fund's turmoil.
- Regulators are seeking information on trading firms' risk appetite and banks' exposure evolution.
- The SEC is examining Situational Awareness' trading activity and leverage use.
The Federal Reserve and the Bank of England are intensifying their examination of how global banks are exposed to large trading firms, according to a Financial Times report. This heightened scrutiny follows significant losses experienced by Jane Street, reportedly amounting to $15 billion, which were linked to turmoil at the AI-focused hedge fund Situational Awareness. The fund, managed by former OpenAI researcher Leopold Aschenbrenner, was compelled to divest most of its public equities portfolio to Citadel Securities after a sharp decline in AI and chip stocks.
Regulators are requesting details from banks regarding the trading firms' risk appetite, how their exposure changed throughout trading days, and the effectiveness of risk controls. The Financial Times cited individuals familiar with the matter for this information.
Separately, the US Securities and Exchange Commission has subpoenaed major Wall Street banks, including Goldman Sachs, JPMorgan, Citigroup, and Bank of America. The SEC is investigating Situational Awareness' trading activities and its use of leverage, particularly the trades that led to margin calls and the fund's communications with its lenders.