Day: January 4, 2024

There is no evidence some investors profited from knowledge of Hamas’s attack on Israel before it took place on 7 October, the Israel Securities Authority (ISA) has said.

One academic study had suggested investors betting against the Israeli economy made large sums.

It said it found significant short-selling in the run-up to the attacks.

But the report has since been called “inaccurate” and “irresponsible” by the Tel Aviv Stock Exchange (TASE).

The ISA said it was dropping its investigation into the matter.

Short-selling is when investors try to make money on shares, bonds or other financial instruments that they think will fall in price.

They arrange to sell shares they do not yet own at the current price, hoping to buy them later at a cheaper price before the shares change hands, so they can then bank the difference.

“Days before the attack, traders appeared to anticipate the events to come,” researchers Robert Jackson Jr from New York University and Joshua Mitts of Columbia University had stated on Tuesday.

The researchers said they had identified a dramatic increase in investors seeking to sell shares in Israeli companies on the TASE.

But the stock exchange said the claims made in the academic paper since were inaccurate, labelling them “irresponsible”.

TASE said the authors of the report had miscalculated the sums, showing the value of the share prices in agorot, similar to pennies, instead of Israeli shekels.

“Therefore they calculate a profit of NIS 3.2bn (£680m) when in practice the profit was only NIS 32m (£6.8m),” TASE’s head of trade Yaniv Pagot told the publication Globes.

He also said claims of a sudden spike in trading before the attack were “divorced from reality”.

The researchers have corrected the currency mistake in their report, but Mr Mitts on Tuesday said that he stood by the “highly unusual” exchange traded fund (ETF) and short-dated options activity also identified by the researchers.

Correction 7 December: This article updates a previous one that included incorrect currency information provided in the report by Robert Jackson Jr from New York University and Joshua Mitts of Columbia University.

Israeli authorities are delving into allegations raised by U.S. researchers, indicating that certain investors might have possessed foresight of a Hamas plan to attack Israel on October 7, Reuters reported on Monday.

The researchers, law professors Robert Jackson Jr from New York University and Joshua Mitts of Columbia University, uncovered substantial short-selling of shares leading up to the attacks, which has ignited the ongoing conflict.

Days preceding the attack, traders seemingly anticipated the unfolding events, as outlined by the researchers. They noted a surge in short interest in the MSCI Israel Exchange Traded Fund (ETF) on October 2, based on data from the Financial Industry Regulatory Authority (FINRA). Furthermore, just before the attack, short selling of Israeli securities on the Tel Aviv Stock Exchange (TASE) notably surged.

The researchers highlighted the unprecedented nature of this short-selling, surpassing levels observed during other periods of crisis, including the 2008 financial crisis, the 2014 Israel-Gaza war, and the COVID-19 pandemic.

Israeli response and ongoing investigation

In response to these findings, the Tel Aviv Stock Exchange (TASE) redirected inquiries to the Israel Securities Authority, stating, “The matter is known to the authority and is under investigation by all the relevant parties.” The Israel Securities Authority confirmed the investigation but provided no further details. Israeli police did not immediately comment on the matter.

Profits and unusual trading activity

The researchers brought to light the profits reaped through short-selling, particularly focusing on Leumi, Israel’s largest bank. Between September 14 and October 5, 4.43 million new shares sold short yielded profits of 3.2 billion shekels ($862 million). It was further pointed out that a sharp and unusual increase in trading risky short-dated options on Israeli companies took place just before the attacks, emphasising the potential exploitation of tragic events by informed traders.

The study indicates a pattern reminiscent of early April when initial reports suggested Hamas was planning an attack. Short volume in the MSCI Israel ETF peaked on April 3, resembling patterns observed just before the October 7 attacks.

Traders profiting from tragic events

The researchers concluded that traders informed about the impending attacks profited from the tragic events, highlighting a concerning gap in U.S. and international enforcement of legal prohibitions on informed trading.

(With inputs from Reuters)