Some stock traders knew about the Hamas attack on Israel in advance and made millions on the inside.
Some stock traders knew in advance the exact date of the Hamas attack on Israel, which occurred on October 7, and made millions of dollars from the fall in shares of Israeli companies traded locally and on Wall Street five days before the Palestinian militants invaded. This assumption was made by journalist Ido Baum in an article published in the Israeli newspaper Haaretz
The conclusion that a number of stock traders in the US and Israel have insider information was made by experts from one of the world's largest open electronic repositories of scientific articles and preprints Social Science Research Network (SSRN) Robert Jackson Jr., Joshua Mitts and colleagues in an article entitled "Trading terror? Financial analysts noted that short selling of Israeli stocks surged in the days leading up to Oct. 7, far exceeding short selling during numerous other periods of crisis in the Middle East.
Our findings show that traders informed of the upcoming attacks benefited from these tragic events - experts say, suggesting that stock market players received information about the date of the attack on Israel directly from Hamas.
A team of SSRN analysts examined transactions in EIS, securities traded on the New York Stock Exchange through which investors can gain exposure to Israeli stocks. The EIS tracks the Tel Aviv Stock Exchange's major indices, including giant Israeli companies such as Nice, Teva, Elbit Systems and Israel Chemicals. Investing in this security is equivalent to investing in the Israeli economy.
Jackson and the team found strong indications that in early October, someone in US stock trading circles was expecting a disaster in Israel that would lead to a collapse in stocks. On the eve of the tragic events, on October 2, some New York Exchange traders made a huge volume of short transactions on EIS, sales of these securities reached a record 227 per day, although previously this figure did not exceed one thousand transactions.
Selling securities that the trader does not own at the time of the transaction (shorting), in this case, highly liquid shares of Israeli companies on the eve of their sharp depreciation, followed by repurchase at a significantly lower price, allowed some traders to earn millions of dollars on exchange rate differences. The value of EIS fell 7,1 percent on Oct. 11, the first day the U.S. market was open for trading. In the 20 days following the Hamas attack, EIS lost 17,5 percent of its original value. With the price of one EIS security at $53 before October 7 and falling to $44,5 after that day, traders earned $9,5 per EIS purchase and sale transaction.
Accordingly, the sale and subsequent repurchase of only 227 EIS allowed knowledgeable traders to make more than two million dollars in Israeli stocks. However, many more such transactions were completed.
It is highly unlikely that the short selling volume on October 2nd occurred by accident, SSRN experts concluded after studying all EIS transactions for the period from 2009 to 2023, during which Israel experienced many crises.
Another reason for their suspicions is the fact that the short transactions were carried out during the Jewish holiday of Sukkot, when nothing unusual was happening in Israel and nothing dramatic was expected. The gigantic gamble against the EIS (that is, against the Israeli economy) was made when the market was going up. Betting against the market trend only increases risk. In addition, short positions were unusually long, strengthening the theory that investors knew about the attack in advance, analysts concluded.
Experts also studied the situation on the Tel Aviv Stock Exchange (TASE) and found a significant increase in securities sales in the days leading up to October 7. There were no objective justifications for this at that time. Closing TASE positions from mid-September to October was extremely profitable, the researchers calculated. At Bank Leumi alone, the 4,43 million new shares sold short between Sept. 14 and Oct. 5 generated a profit (or averted loss) of NIS 3,2 billion (nearly $900 million) on that additional short sale.
Shorting is not illegal, and US securities law does not prohibit the use of forewarning. This is also not a violation of insider trading rules in Israel. But Israeli sources said there are financially savvy people in Hamas, and it is not implausible that they are behind these shorts. It is possible that Hamas, the leaders of the Palestinian movement, themselves made good money from the collapse of Israeli stock prices, according to the authors of the SSRN study.