On Monday, September 21, the Financial Times reported that the Federal Reserve and the Bank of England are asking global banks about their exposures to large trading firms, following the turmoil at an AI-focused hedge fund that contributed to trading giant Jane Street’s roughly $15 billion loss in July. Reuters carried the FT’s exclusive, noting that neither central bank nor Jane Street responded to requests for comment, and that Reuters could not independently verify the report.
It is the latest chapter in a story that has everything a market drama needs: a secretive trading firm, a 24-year-old former OpenAI researcher, a 439 percent first half, a fire sale to a rival, and now the attention of the world’s most powerful central banks. Here is what happened, in order, and what it means for the rest of us.
The firm
Jane Street is a proprietary trading firm based in New York, famous on Wall Street for two things: making enormous amounts of money, and saying almost nothing about it. The firm employs around 3,500 people, runs a flat organization with no single public face, and trades with a math-heavy, risk-obsessed culture.
The numbers explain the reputation. In 2025, Jane Street generated $39.6 billion in trading revenue, a Wall Street record, according to people familiar with the matter and an internal note seen by Reuters. Through mid-August of this year, the firm had already taken in more than $40 billion in net trading revenue, easily outstripping the trading desks of the largest banks and already topping everything it made in all of 2025.
Then came July.
The fund
Situational Awareness is an AI-focused hedge fund run by Leopold Aschenbrenner, a former OpenAI researcher. Jane Street rarely allocates capital to outside managers, but it made an exception here: an initial investment of about $2.5 billion that, after a spectacular first half, had grown to nearly $10 billion by midyear. The fund reportedly returned 439 percent in the first six months of 2026, riding the artificial intelligence boom with concentrated, heavily leveraged bets on chip and AI infrastructure stocks, including large stakes in SanDisk and Micron.
In July, the AI trade cracked. Chip stocks sold off sharply, SanDisk fell 47 percent and Micron 29 percent in the month, and margin calls mounted at the fund. On July 30 and 31, Aschenbrenner was forced to sell most of the fund’s public equities portfolio to Citadel Securities, the market maker run by billionaire Ken Griffin, in what amounted to a fire sale. The fund’s assets collapsed from roughly $45 billion to about $10 billion in a single month, a loss of around 67 percent.
Jane Street, which counts itself among the fund’s investors, took roughly $7 billion of its July hit directly from that single position. The rest came from its own AI stock exposure and wrong-way bets in Asian equity markets. All told: about $15 billion gone in a month, or close to $650 million per trading day. It was the firm’s first losing month in about a decade.
The evidence, in the firm’s own words
In a note to employees, Jane Street executives called July “a bad month” and blamed the drawdown at Situational Awareness for contributing to the poor performance. The note, seen by Reuters, was strikingly candid about what went wrong with the firm’s defenses:
“We have an investment in Situational Awareness, an externally managed AI-focused hedge fund, that became large by performing well in the first half of the year. They had a large drawdown that left our stake about flat on the year, but still up over the entire period we have been invested,” the note said.
On hedging, the firm explained that it generally worries most about sharp drawdowns and buys put options that would help in those scenarios: “The losses in AI stocks were relatively spread out throughout the month, so those short-term hedges provided little help.”
That is a revealing admission from one of the world’s most sophisticated risk managers. The hedges were built for a sudden crash. What arrived instead was a slow bleed, day after day, the kind of loss that slips through protection designed for a different shape of disaster. The firm also took a hit from long positions in non-AI stocks in Asia, many of which had outperformed earlier in the year.
The regulators step in
The story did not end in July. Last month, the Securities and Exchange Commission subpoenaed four Wall Street banks, Goldman Sachs, JPMorgan, Citigroup, and Bank of America, examining Situational Awareness’s trading activity and use of leverage after its near-collapse, including the trades that triggered margin calls and the fund’s communications with lenders. That is according to the Reuters account of the FT’s reporting.
Now the central banks are asking their own questions. According to the FT report published Monday, the Fed and the Bank of England want details on three things: the trading firms’ risk appetite, how banks’ exposures to them evolved throughout the trading day, and how risk controls operated. In plain language, regulators want to know how much leverage was sloshing through the system, who was financing it, and whether anyone noticed the danger building up intraday, when it mattered.
The outcome, so far
Here is the part that complicates any simple moral. Jane Street’s July was, by the firm’s own description, bad. But the firm still made more than $40 billion in trading revenue in the first seven and a half months of the year. The loss was absorbed. The business continues. Partner Turner Batty told staff the firm had become “more selective about risk” and had closed a significant portion of its risk in the areas where it lost money.
That resilience is exactly why regulators are paying attention. A firm can lose $15 billion in a month and keep going only if the system around it, the banks that finance its leverage, the market makers that absorb its fire sales, holds together. The Fed and the Bank of England are now checking whether it would hold together a second time, or whether the next fund to blow up takes its lenders with it.
What it means for the rest of us
You almost certainly have no money with Jane Street or Situational Awareness. But this story still touches your financial life in two ways.
First, it is a reminder about leverage and concentration, the two forces that turn a bad month into a historic one. A fund that returns 439 percent in six months and loses 67 percent in one month is not investing. It is making a leveraged directional bet, and the bill for that bet eventually comes due. Whenever you see returns that look too good to be real, in your own portfolio or someone else’s pitch, ask what happens on the other side of the trade.
Second, watch what banks do next. When a prime broker gets burned financing a leveraged fund, it tightens lending to every fund that looks similar. Less leverage in the system means less fuel for rallies, but also less kindling for fires. If banks pull back from financing trading firms broadly, market liquidity can thin out, and thinner markets mean choppier prices for everyone, including the index funds in your retirement account.
The central banks are asking questions now because they would rather understand the plumbing before the next flood. That is, quietly, good news.
