The Federal Reserve and the Bank of England scrutinize banks' exposure to "trading whales"

The Financial Times reported on Monday that the Bank of England and the U.S. Federal Reserve are asking global banks about their exposure—both the size of their transactions and associated risks—to major trading firms (“trading whales”), following the turmoil surrounding the “Situational Awareness” hedge fund, which caused significant losses for Jane Street.

The fund, which focuses on artificial intelligence and is managed by former OpenAI researcher Leopold Aschenbrenner, was forced to sell most of its public equity portfolio through Citadel Securities after a sharp sell-off in AI and semiconductor stocks, contributing to Jane Street’s losses of $15 billion that month.

Citing informed sources, the newspaper’s report stated that central banks are currently seeking information on the risk appetite of trading firms, how banks’ exposure to them evolves during trading days, and the mechanisms behind their risk controls.

Last month, the U.S. Securities and Exchange Commission issued subpoenas to Wall Street banks, including Goldman Sachs, JPMorgan Chase, Citigroup, and Bank of America, as part of its investigation into the trading activities and use of leverage by the Situational Awareness fund following its near-collapse crisis. This included examining trades that triggered margin calls and correspondence between the fund and its lenders.