Regulators in Israel are aware of and reviewing research that suggests some unknown traders may have had advance knowledge of the October 7th Hamas attacks.
“This subject is known and is being thoroughly checked,” Sivan Carmon, a spokesperson for the Israel Securities Authority, told CNN in a statement on Tuesday.
The statement comes after preliminary research released Monday by professors at Columbia University and New York University found an “unusual” spike in bets against the value of Israeli companies in the days before the attacks.
The ISA, the Israeli equivalent of the US Securities and Exchange Commission, is charged with fighting securities fraud, insider trading and other market abuse.
The spokesperson said the Israeli regulator “works with all relevant factors in Israel and abroad.”
The US Securities and Exchange Commission told CNN on Monday that it does not confirm the existence or nonexistence of investigations. The Financial Industry Regulatory Authority (FINRA), Wall Street’s self-regulator, similarly said it does not comment on whether or not it is conducting an investigation.
The preliminary research, which hasn’t been peer reviewed, found in the days before the Hamas attacks that bets against the value of the MSCI Israel Exchange Traded Fund (ETF) “far exceeded” the short selling activity that took place during the Covid-19 pandemic, the 2014 Israel-Gaza war or even the 2008 financial crisis.
“Our findings suggest that traders informed about the coming attacks profited from these tragic events,” the authors wrote.
Yaniv Pagot, head of trading at the Tel Aviv Stock Exchange, said in a statement to CNN on Tuesday that the paper revealed an “unfamiliarity with the local market” because researchers incorrectly calculated the estimated profit from shorting one particular Israeli company.
The professors previously estimated that bets against Bank Leumi in the days before the October 7 attacks would have generated profits of billions of dollars. A corrected version of the research, sent to CNN on Monday, fixed that mistake and estimated the profits from that trade in the millions of dollars.
“This is a flawed analysis from the outset and there is a lack of understanding of how the local market operates,” Pagot said.
However, the Tel Aviv Stock Exchange executive did not question the central findings of the report: that there was an unusual spike in the volume of short selling in the days before the attack.
Experts urged regulators to investigate the matter, including by looking at nonpublic market data that researchers did not have access to.
“Clearly, there was something troubling some large investors,” Charles Whitehead, a professor at Cornell Law School, told CNN.
Whitehead noted there is a long history of sophisticated investors trading based on “anticipated, future catastrophic events.” He pointed to traders in the 1980s who shorted the stock of insurance companies that had significant exposure to real estate in San Francisco. Those traders then profited after the region was hit by an earthquake in 1989.
“Of course, that’s quite different from trading based on inside knowledge of terrorist attacks,” Whitehead said. “Whether that was tied to knowledge of terrorist activity requires a better understanding of who was trading and the nature of the trading activity during the lead-up to the Hamas terrorist attack.”
– CNN’s Gayle Harrington contributed to this report.
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