The Federal Reserve and the Bank of England are asking global banks to account for their exposure to major trading firms after Jane Street recorded a $15 billion loss in July.
The scrutiny centres on lending, credit and market links between commercial banks and large nonbank trading firms. The two central banks are asking lenders how large those exposures are and how such positions perform during fast-moving market stress.
Jane Street’s loss came as a prolonged rally in AI-related stocks reversed sharply. The firm also suffered losses linked to its investment in Situational Awareness, an AI-focused hedge fund whose multibillion-dollar losses added to the damage.
July was Jane Street’s first negative trading month since 2016. Situational Awareness was forced to unload most of its public equities portfolio to Citadel Securities during the month, following a sharp sell-off in AI and chip stocks.
The episode has focused attention on the way banks finance and extend credit to trading firms and hedge funds whose positions can move rapidly in the same direction. The information sought by the Federal Reserve and Bank of England could show how funding arrangements hold up when technology-heavy trades unwind quickly.
Jane Street said that, despite the July loss, it remained up over $40 billion for the year. It posted $40 billion in revenue in 2024, making it the world’s most profitable trading firm.
The firm has significant activity across markets. Its bond trading volume last year was over $900 billion. It also holds a stake in the AI company Anthropic.
Situational Awareness is run by Leopold Aschenbrenner, a 24-year-old former OpenAI researcher focused on AI. Losses at the fund compounded Jane Street’s losses during the reversal in AI and semiconductor shares.
JPMorgan terminated its prime brokerage loan while retaining market access for the fund. The available information does not establish the mechanism or timetable through which the July losses affected that relationship.
The central-bank inquiries do not identify all the banks being questioned. They also leave unclear the banking sector’s total exposure to Jane Street and similar firms, whether other trading firms sustained comparable losses, and whether either authority will pursue changes to regulation or capital requirements.
The scale of Jane Street’s annual revenue and market activity illustrates why the questions extend beyond a single bad month. The immediate issue for supervisors is whether bank exposures to major nonbank trading firms can produce wider funding pressure when correlated positions fall sharply.
JPMorgan’s 2024 trading revenue was $41 billion, a figure close to Jane Street’s $40 billion revenue in 2024. The comparison underscores the scale at which large trading firms now operate alongside the banking system, even as the extent of banks’ exposure to them remains undisclosed.
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