update deskIsrael at War

Israeli expert, regulator cast doubt on Oct. 7 insider trading report

"I don't see in the data something even close to what they wrote in the paper," said Yaniv Pagot, head of trading at the Tel Aviv Stock Exchange.

A stock market ticker screen in the lobby of the Tel Aviv Stock Exchange, in the center of Tel Aviv, March 15, 2020. Photo by Flash90.
A stock market ticker screen in the lobby of the Tel Aviv Stock Exchange, in the center of Tel Aviv, March 15, 2020. Photo by Flash90.

According to the head of trading at the Tel Aviv Stock Exchange (TASE), a recent report by two U.S. law professors claiming that traders had advance knowledge of Hamas’s attack of Oct. 7 suffers from serious flaws.

The report, by law professors Robert J. Jackson Jr. of New York University School of Law and Joshua Mitts of Columbia Law School, found a sharp rise in the short-selling of Israeli stocks in the weeks leading up to the attack, in which thousands of Hamas gunmen stormed the border, murdering 1,200 people, wounding more than 5,000 and taking 240 hostages back to the Gaza Strip.

“Days before the attack, traders appeared to anticipate the events to come,” they wrote in the 67-page report.

The authors focused in particular on transactions involving Israel’s largest bank, Bank Leumi.

However, according to TASE head of trade Yaniv Pagot, the researchers did not realize that share prices on the Tel Aviv exchange are listed in agorot (cents equivalent) rather than shekels (dollars equivalent).

That would put the ostensible short-sale profit at just 32 million shekels (around $8.6 million), instead of the 3.2 billion shekels ($859 million) claimed by the U.S. researchers.

Nor was that the only issue Pagot found with the report.

“I don’t see in the data something even close to what they wrote in the paper,” Pagot told Reuters. “There was nothing unusual in short positions in the stock exchange in the two months before the attack.”

Moreover, Psagot said the paper betrays a “lack of understanding” of the workings of the exchange, according to Israeli business daily Globes.

“If we assume that somebody carried out a huge short sale in a share, whoever made such a short sell would be completely transparent to the local regulator because he has to sign a share lending agreement with a TASE member. So would somebody from Hamas or a straw company acting on their behalf sign a share lending agreement on the TASE?” he continued.

“Even if somebody wants to borrow shares worth NIS 500 million, they need to identify themselves to a bank and take out a credit framework. So the bank needs information on who is involved. There are [concerns such as] money laundering, etc.” he said, according to Globes.

A scenario such as that outlined by the U.S. report was simply not possible, he added.

“It is regrettable that the researchers did not check with Israeli TASE members and they could have asked how these things work in Israel,” he concluded.

The Israel Securities Authority (ISA) also released a statement confirming that no significant abnormal trading was seen in the days leading up to the Oct. 7 attack that would warrant an investigation.

“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 Oct. 7,” the regulator said.

However, report coauthor Mitts told Reuters that the currency issue had been corrected, but that this did not affect the paper’s claims regarding “highly unusual” activity with exchange-traded funds (ETF) and short-dated options.

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