February 22, 2024


An electronic ticker displays stock price information on a totem sign outside the Tel Aviv Stock Exchange in Tel Aviv, Israel, on Tuesday, Nov. 7, 2023.

Bloomberg | Bloomberg | Getty Images

The head of trading at the Tel Aviv Stock Exchange criticized “flawed analysis” in a recent research report that documented short selling ahead of the Oct. 7 terror attack in southern Israel.

The research, titled “Trading on Terror?” and published on the Social Science Research Network by two law professors, includes claims that there was a “significant spike in short selling” in the MSCI Israel exchange-traded fund, a basket of Israeli stocks, on Oct. 2, citing Financial Industry Regulatory Authority data.

The authors initially cited price movements using shekels, when the data was referring to agorot, worth one-hundredth of a shekel. The report has been reissued with a correction on the Israeli currency units. The authors of the research say it raises wider issues that need to be investigated by regulators.

Yaniv Pagot, head of trading at the Tel Aviv Stock Exchange, said the currency issue resulted in “quite a few mistakes,” including the claim that profits from short selling in the Israeli bank Leumi totaled 3.2 billion shekels ($865 million), rather than 32 million shekels. Short selling involves betting that an asset price will fall and the research report suggested some investors had been betting against the Israeli economy and made large returns.

“”This is a flawed analysis from the outset and there is a lack of understanding of how the local market operates,” Pagot said in a statement provided to CNBC.

Pagot was commenting only on the portion of the report related to the Tel Aviv Stock Exchange. He further told Reuters in an interview, “There was nothing unusual in short positions in the stock exchange in the two months before the attack.”

CNBC has not independently reviewed the FINRA data or the trading patterns referenced in the report. A separate statement by the Israel Securities Authority said that “examinations found, inter-alia, that the average short balances for shares traded on the Tel-Aviv Stock Exchange declined during the period preceding October 7th,” according to Reuters.

The report suggests the trades may have been informed by prior knowledge of the attacks. The authors, Joshua Mitts, a professor at Columbia Law School, and Robert Jackson, a law professor at New York University, said they found “troubling trading patterns” that warrant investigation.

“As the [Israel Securities Authority] acknowledges, short sellers trading just before October 7 earned tens of millions of [new Israeli shekel] in profits on one [Tel Aviv Stock Exchange] security alone, and the ISA’s investigation did not address the short selling in the Israel ETF or short-dated options described in our paper. We hope regulators in Israel and around the world will continue to examine these troubling trading patterns,” the authors told CNBC.



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