The Israeli securities watchdog said that it did not find any abnormalities in share trading in the days ahead of the onslaught by the Hamas terror group on October 7, responding to claims made in a recent US study that there were informed investors who may have profited from prior knowledge.
The study, titled “Trading on Terror,” published Sunday in the SSRN journal by Robert J. Jackson, Jr. from the New York University School of Law and Joshua Mitts of Columbia Law School, suggested that investors made billions of shekels using advance knowledge to short-sell Israeli companies in the days leading up to the massacre.
The US researchers said they found a “significant spike in short selling in the principal Israeli-company ETF [exchange traded funds] days before the October 7 Hamas attack,” concluding that their data was in line with the consequences of informed trading.
Short selling is when a trader borrows shares in a specific company and then sells them, hoping the price will fall afterwards, so they can buy them back for a lower price.
“In the days preceding the Hamas terrorist attack, no significant trading abnormalities that necessitate further investigation were detected,” the Israel Securities Authority (ISA) said in a statement.
The ISA said it operates a technological intelligence system which continuously monitors for abnormalities during all trading hours.
With the outbreak of the war in the aftermath of the October 7 atrocities, in which 3,000 Hamas-led terrorists murdered 1,200 people in southern Israel and abducted 240, the ISA immediately opened an investigation to “detect suspicious trading activity that could be tied to the Hamas attack,” the securities regulator said.
“This examination did not yield any findings to this effect,” the ISA said.
The ISA said it re-examined trading activity in response to the US study, which was brought to its attention several weeks ago, to assess the findings of the research in the report.
“The findings of this examination did not raise any concerns regarding suspicious activity on the stock exchange in Israel during the relevant days,” the ISA concluded. “Unlike the statements in the research, the ISA’s examinations found, inter alia, that the average short balances for shares traded on the Tel Aviv Stock Exchange declined during the period preceding October 7.”
Israeli companies analyzed in the US research paper included major banks Hapoalim, Leumi, Discount, and Mizrahi-Tefahot, as well as pharmaceutical firm Teva and software giant NICE.
“For one company alone (Bank Leumi), 4.43 million new shares sold short over the September 14 to October 5 period yielded profits of NIS 3.2 billion on that additional short selling,” the researchers wrote in the paper.
Yaniv Pagot, head of trading at the Tel Aviv Stock Exchange, exposed that the researchers’ calculation is inaccurate, pointing to the fact that share prices of companies traded on the local exchange are quoted in agorot — similar to cents — and not shekels, putting the short-sale profit at millions of shekels. There are 100 agorot in each shekel.
“So the professors made some calculations, but just forgot to divide by 100,” Saar Golan, a trader at Bank Leumi, wrote in a LinkedIn post. “And so the actual ‘profit’ from the short position, assuming they sold a day before the attack and closed the position at the post-war low of October 23, was NIS 32 million and not NIS 3.2 billion.”
The US researchers have by now corrected the currency issue to reflect that the short-sale profit yielded around NIS 30 million.
“The value of theoretical returns of the short balance in Bank Leumi shares which was opened about three weeks before the start of the war, is estimated in several tens of millions of shekels, rather than three billion shekels,” the ISA said.
Times of Israel staff contributed to this report.