On October 7th, 2023, a meticulously planned attack by Hamas on Israel managed to outmaneuver Israeli intelligence and military defenses. This event has now become the focal point of a groundbreaking financial study by Robert Jackson Jr, a former commissioner of America’s Securities and Exchange Commission, and Joshua Mitts from Columbia University. Their research indicates that someone might have exploited confidential information about the attack to reap significant profits in the stock market.
The researchers meticulously analyzed the trading patterns of Israeli stocks in the lead-up to the October 7th incident. They uncovered a series of trading anomalies that strongly suggest informed trading. One of the most conspicuous findings was an unusual surge in short sales of an exchange-traded fund (ETF) listed on the New York Stock Exchange as EIS, which tracks the performance of Israeli shares.
This anomaly was particularly striking on October 2nd, merely five days before the attack, when an atypical volume of 227,820 EIS shares were shorted—representing a stark 99% of the ETF’s trading volume that day. Two large transactions predominantly contributed to this surge. The potential profits from these trades, as estimated by the researchers, could have been as high as $2 million over the subsequent weeks, indicating a significant financial maneuver.
Beyond the ETF, the study also noted unusual activities in options contracts associated with Israeli firms’ shares traded in the United States. In the three weeks preceding the attacks, there was an eightfold increase in the number of options contracts expiring shortly after October 7th. In contrast, longer-dated options saw minimal changes. This disparity further fueled suspicions of informed trading, suggesting a strategic focus on short-term market movements expected after the attack.
To contextualize these findings, the authors compared the trading activities to other turbulent periods in Israel. For instance, during the government’s attempted judicial reform earlier in the year, no similar trading patterns were detected. Interestingly, the only other period showing similar trading behavior was in early April, coinciding with the Jewish holiday of Passover. Reports from Israeli media indicated that this was the originally planned date for Hamas’ attack, further corroborating the hypothesis of informed trading.
Following the publication of this study, Israel’s securities authority has initiated a thorough investigation into these trades. The secretive nature of the attacks suggests a highly unlikely scenario where such critical information could have been accidentally leaked to an external short-seller. Instead, the evidence points towards an insider within Hamas or someone with close connections to the group.
This situation has drawn parallels to previous instances of suspected insider trading linked to terrorist activities. However, the scale and sophistication of these trades set a new precedent. In the last two months, only a single trading firm with links to Hamas, a cryptocurrency exchange in Gaza, has been sanctioned by the United States for illicit transactions totaling approximately $2,000. The trades identified in the Jackson-Mitts study suggest a much more elaborate and financially significant operation.
The implications of this research extend beyond the immediate context of the October 7th attack. It highlights a disturbing trend of economic warfare where financial markets become arenas for geopolitical conflicts. Joshua Mitts speculates that the transactions they uncovered might represent just a fraction of a more extensive network of economic exploitation aligned with terrorism.
As Dr Iain Overton of AOAV says: “”The intricate case of the October 7th attack exposes a harrowing truth: the realm of international terrorism seems tobe evolving far beyond physical violence. It now seeps into the arteries of our global financial systems, challenging our preparedness and response to such covert economic warfare. This groundbreaking study by Jackson and Mitts not only potentially uncovers a potentially sophisticated exploitation of market vulnerabilities but also serves as a stark reminder of the increasingly complex nature of security threats in the modern world. It’s a testament to the urgent need for more robust, interconnected frameworks in finance and security to preempt and counter such insidious strategies.”
As the investigation continues, this study sheds light on the intricate and often overlooked financial dimensions of international terrorism. It raises critical questions about the robustness of global financial monitoring systems in the face of sophisticated schemes that intertwine finance with geopolitics and security. The revelations from this study are not just a wake-up call for market regulators but also for international security agencies to reevaluate the interplay between economic movements and global security threats.
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