A new study has raised eyebrows in the financial world, suggesting that some traders might have had foreknowledge of the October 7 Hamas attacks on Israel. The research, conducted by law professors at Columbia University and New York University, points to an unusual spike in short selling of Israeli companies just days before the attacks.
Short selling, a method of betting against a security's value, saw a significant increase in the MSCI Israel Exchange Traded Fund (ETF). This activity, according to the study, was more pronounced than during other major events such as the Covid-19 pandemic or the 2014 Israel-Gaza war. The authors of the study, former SEC commissioner Robert Jackson Jr. and Columbia law professor Joshua Mitts, observed that nearly 100% of the off-exchange trading volume in the MSCI Israel ETF consisted of short selling five days before the attack.
The implications of these findings are profound. Jonathan Macey, a Yale Law School professor, described the paper as "shocking" and noted the strong evidence suggesting that informed traders profited by anticipating the terrorist attack. This assertion is significant given the scale of the October 7 attacks, where at least 1,200 people were killed in Israel, and others were taken hostage by Hamas.
The study, titled "Trading on Terror?", did not establish a direct link to Hamas, and the authors have urged caution in drawing such conclusions. However, the timing and magnitude of the trades raise questions about the possibility of insider information being used for financial gain. The researchers acknowledge the limitations of public trading data and suggest that there is more trading activity that remains hidden from public view.
The U.S. Securities and Exchange Commission, when approached for a response, stated it does not comment on potential investigations. The Israeli Securities Authority, too, has not commented publicly but informed Reuters that the matter is under investigation. The Financial Industry Regulatory Authority (FINRA) also declined to comment on any ongoing investigations.
This research highlights a critical area of concern in financial markets: the potential for terrorist groups or their affiliates to profit from insider information. While the study is preliminary and does not definitively link the trading activity to any particular group or individuals, it underscores the need for vigilance and robust regulatory oversight in financial markets, especially in the context of global security events.
The paper's findings have prompted a call for closer scrutiny by regulatory bodies like the SEC and FINRA, which have access to nonpublic data that could shed more light on these transactions. The surge in short selling of Israeli securities on the Tel Aviv Stock Exchange before the attack, and not before other crises, adds another layer to the mystery that regulatory authorities will need to unravel.
As the financial and legal communities continue to digest these findings, the study serves as a reminder of the complex intersections between global events, security, and financial markets. The potential use of insider information relating to terrorist activities not only poses ethical and legal questions but also highlights the need for more stringent monitoring and preventive measures in the financial industry.
