Israel exchange says no abnormal trading ahead of Oct. 7 attack, calls short seller report ‘flawed’

Key Points

• Flawed Analysis and Currency Issues: The head of trading at the Tel Aviv Stock Exchange criticized a research report titled “Trading on Terror?” that documented short selling ahead of the Oct. 7 terror attack in southern Israel. The report, published by two law professors on the Social Science Research Network, claimed there was a significant spike in short selling in the MSCI Israel exchange-traded fund on Oct. 2. The criticism focused on flawed analysis, particularly related to the use of incorrect currency units (shekels instead of agorot), leading to errors in claims such as profits from short selling in Israeli bank Leumi.
• Revised Report and Widening Regulatory Concerns: The authors of the research report acknowledged the currency issue and reissued the report with corrections on Israeli currency units. They argued that despite the mistakes, the report raises wider issues that warrant investigation by regulators. The research suggests that trades preceding the terror attack may have been informed by prior knowledge, emphasizing troubling trading patterns that, according to the authors, should be further examined by regulators in Israel and globally.
• Denial and Lack of Unusual Short Positions: Yaniv Pagot, the head of trading at the Tel Aviv Stock Exchange, denied the validity of the analysis, stating that it is flawed and lacks an understanding of how the local market operates. Pagot commented specifically on the part of the report related to the Tel Aviv Stock Exchange, stating that there was nothing unusual in short positions in the two months before the attack. The Israel Securities Authority also released a statement indicating that examinations found a decline in average short balances for shares traded on the Tel-Aviv Stock Exchange during the period preceding October 7th.