Fed, BoE Intensify Scrutiny After Jane Street Loss

The Federal Reserve and Bank of England are intensifying scrutiny of global banks’ exposure to large trading firms and market makers after Jane Street suffered an approximately $15 billion trading loss in July, its first negative month since 2016. Regulators are seeking information on firms’ risk appetite, intraday changes in banks’ exposure and the effectiveness of risk controls, reflecting broader concerns about links between banks and non-bank financial intermediaries. The losses were tied in part to a sell-off in artificial-intelligence and semiconductor stocks, including turmoil involving AI-focused hedge fund Situational Awareness. Despite the setback, Jane Street reportedly remained highly profitable overall, with more than $40 billion in net trading revenue through mid-August. The episode has renewed debate over the systemic importance of rapidly expanding firms such as Jane Street, Citadel Securities, Susquehanna and Hudson River Trading, which have grown beyond traditional market making into proprietary trading and other riskier investments.