Israel explores charges share traders knew Hamas attack was coming

Israel has stated that it is conducting an investigation into allegations that some investors may have previously been aware of the attack that Hamas carried out against Israel on October 7th.

Investors who placed bets against the Israeli economy may have made significant profits, according to a study conducted by academics. During the time leading up to the attacks, researchers discovered a large amount of short selling.

The practise of short-selling refers to the attempt by investors to generate profits from shares, bonds, or other financial instruments that they believe will experience a decline in price.

They make arrangements to sell shares that they do not yet own at the current price, with the expectation that they will be able to purchase those shares at a lower price in the future, prior to the shares changing hands, and then bank the difference.

The researchers Robert Jackson Jr. from New York University and Joshua Mitts from Columbia University arrive to the conclusion that traders appeared to anticipate the events that were going to take place in the days leading up to the attack.

They stated that the short-selling "far outpaced the short-selling that occurred during multiple prior periods of crisis," such as the recession that followed the financial crisis, the war between Israel and Gaza in 2014, and the Covid-19 outbreak.

In their findings, the researchers reported that they had discovered a significant rise in the number of investors who were interested in selling shares in Israeli companies on the Tel Aviv Stock Exchange.

They also saw a surge in the amount of selling activity in an investment known as an Exchange Traded Fund (ETF), which is a type of investment that follows the movements of Israeli shares.

The exchange-traded fund (ETF) is a type of fund that may be purchased and sold and invests in a pool of underlying shares. Investors are able to buy or sell an entire category of assets, which in this example is Israeli enterprises, because they often follow the movements of an index such as Dow Jones.

According to the findings of the study, short-selling activity in the MSCI Israel Exchange Traded Fund "suddenly and drastically rose" on October 2nd. This occurrence was based on data obtained from the Financial Industry Regulatory Authority, which is the financial watchdog in the United States.

A report that was 66 pages long included the following statement: "Just prior to the attack, there was a significant spike in the short-selling of Israeli equities on the Tel Aviv Stock Exchange." The Israel Securities Authority issued the following statement in response to the allegations: "The problem is known to the authority and is under investigation by all relevant parties."

The inquiry found that between September 14 and October 5, 4.43 million more shares of Leumi, Israel's largest bank, were short-sold, resulting in gains of 3.2 billion shekels according to sources.

The report concluded that "our data show that dealers who were told of the impending attacks benefitted from these terrible incidents." According to past studies, this type of trading occurs in locations where informed trading bans in the US and abroad are not fully implemented.