The Tel Aviv Stock Exchange said on Tuesday that a report by U.S. researchers suggesting that investors in Israel may have profited from prior knowledge of the Hamas attack on October 7 is inaccurate and its publication is irresponsible.
Academic Research
Research conducted by law professors Robert Jackson Jr. from New York University and Joshua Mitts from Columbia University showed that there was significant selling of shares before the attacks, which led to the ongoing war between Israel and Hamas.
They stated that the activity “went beyond the short selling that occurred during many crises” such as the financial crisis of 2008 and the COVID-19 pandemic.
They wrote that for investors in Leumi (LUMI.TA), Israel’s largest bank, 4.43 million shares were sold short during the period from September 14 to October 5, resulting in profits of 3.2 billion shekels ($859 million).
Exchange Response
However, the Tel Aviv Stock Exchange said the authors made a miscalculation, as stock prices are listed in agorot, which are akin to cents and pence, rather than shekels – putting the potential profit from the short sale at only 32 million shekels.
Yaniv Bagot, head of trading at the exchange, said that when looking at the short interest in Leumi, there was an increase of about 4.5 million shares in the week ending September 21 and then the position stabilized.
Bagot added, “I see nothing in the data that comes close to what they wrote in the paper,” noting that the researchers did not speak to the Tel Aviv Stock Exchange or its members. “There was nothing unusual about short positions in the exchange during the two months leading up to the attack.”
Response from the Israeli Securities Authority
In a separate statement, the Israeli Securities Authority (ISA) said that in the days leading up to the Hamas terrorist attack, no significant trading distortions were detected that warranted a more detailed investigation.
The authority stated in its announcement, “ISA’s checks found, among other things, that the short average of balances for shares traded on the Tel Aviv Stock Exchange decreased during the period leading up to October 7,” adding that its calculations showed that the theoretical return value of the short balance in Leumi shares opened about three weeks before the war began is estimated at several tens of millions of shekels rather than three billion shekels.
Researchers’ Comment
Mitts told Reuters via email that the 67-page report has since been corrected, but the currency issue did not affect the trading activity of the exchange-traded fund (ETF) and short options also identified by the researchers.
The research paper stated, “Short interest in the MSCI Israel ETF traded on the Tel Aviv Stock Exchange dropped sharply and suddenly on October 2, based on data from the Financial Industry Regulatory Authority (FINRA).”
Bagot said he does not understand the “ETF theory,” also stating that the short position in Leumi was taken by an unknown Israeli bank known to the Tel Aviv Stock Exchange.
He added, “We know that their compliance is very strict, so it is unlikely that such a position stemming from a terrorist organization would pass through this member’s compliance for money laundering or something like that,” referencing media speculation that Hamas itself was behind the short selling.
Investigation by the Israeli Securities Authority
The Israeli Securities Authority said it had been aware of the report for a week and was in contact with the researchers, but it declined to comment while it investigates the exchange’s response.
($1 = 3.7243 shekels)
Report by Stephen Scherer, editing by Mark Potter and Leslie Adler
Our Standards: The Thomson Reuters Trust Principles. Rights to access licensing
Leave a Reply