Did someone in the City know what was going to happen on 7 October?

Some years ago, I was in a pub when one of the blokes I was with suddenly started punching the air and laughing. He traded in potato futures and he’d just heard the crop had failed in large parts of South America due to flooding.
He was not bothered that people might go hungry as potatoes would be hard to find. All he cared about was that a shortage of produce meant a rise in price, which resulted in a financial killing for him. It was an image that has stayed ever since, of the City dealer cashing in on the misery of others.
That’s capitalism, right there. So it is with short-sellers, the speculators (or perhaps not, possibly they’re well-informed) who take a punt on shares falling. As the business, its employees and owners feel the pinch, they’re making a fat profit.
Did my man in the bar have a clue? When I asked, he smiled: he had devoted many hours recently to studying Brazil and Argentina weather forecasts and historical patterns and geology so he wasn’t entirely shocked.
The City, Wall Street… they are full of conspiracy theories about the shorts. Whenever something unexpected occurs, the eagle-eyed scrutinise the share buying or selling ahead of the event for any sign of suspicious activity, for the suggestion that someone somewhere was forewarned. Now, it’s being alleged again, that Israeli stocks were being shorted ahead of the Hamas attacks of 7 October.
Two New York law professors, Robert Jackson Jr from New York University and Joshua Mitts of Columbia, have produced a report, Trading in Terror?, alleging some investors may have been aware of Hamas’s plan and used the information to earn millions of dollars.
“Days before the attack, traders appeared to anticipate the events to come,” the researchers wrote, citing short-selling of an exchange-traded fund that broadly tracks the performance of the Israeli stock exchange that “suddenly, and significantly, spiked” on 2 October.
“And just before the attack, short-selling of Israeli securities on the Tel Aviv Stock Exchange [TASE] increased dramatically,” they wrote in their 66-page report.
They went on to assert that the profits may have exceeded $100m (£79m). They based their study on data from the Financial Industry Regulatory Authority.
According to the research, the short-selling observed prior to 7 October “exceeded the short-selling that occurred during numerous other periods of crisis”, including the recession after the financial crisis in 2008, the 2014 Israel-Gaza war, and the Covid-19 pandemic. In one example cited in the report, 4.43 million new shares in Leumi, Israel’s largest bank, were sold short between 14 September and 5 October. Leumi’s share price dropped by almost 9 per cent on 8 October in the immediate aftermath of the attack.
The report notes that the sharpest increase in short-selling occurred during what is normally a time of relatively little activity in Israel due to Jewish holidays.
The research also found that while there was no increase in shorting of Israeli companies on US exchanges, there was an “unusual increase” in “risky” trades just before the attacks. “Our findings suggest that traders informed about the coming attacks profited from these tragic events, and consistent with prior literature we show that trading of this kind occurs in gaps in US and international enforcement of legal prohibitions on informed trading.”
The professors noted similar patterns of short-selling in early April, when it was reported that Hamas was initially planning its attack on Israel. Short-selling “peaked on 3 April at levels very similar to those observed on 2 Oct, and was far higher by an order of magnitude than other days prior to 3 April,” they said.
This isn’t the first time that conspiracies of this nature have emerged.
It happened with 9/11, and again with Russia’s invasion of Ukraine. Both relied on the element of surprise; as far as could be ascertained, in each case, knowledge of what was about to unfold was tightly guarded. There were no leaks, or put it this way, if there had been, then surely counter-action would have been taken.
Yet, there were those who persisted in believing that some investors did know and were able to trade accordingly. Airline stocks plummeted after the strikes on the Twin Towers and Pentagon. There were rumours of short-sellers netting windfalls on the back of the plunging shares.
Same with Ukraine. There, energy and grain were the targets. Industries that relied upon Ukrainian oil and gas and wheat were going to come in for a pasting. Likewise, a firm that looked to Russia for business could also expect difficult times ahead.
This raises, of course, the intriguing possibility that the Hamas operation was funded by some timely share dealing.
You’ve heard of the “Wolf of Wall Street” stereotype – which to be fair, I did witness in real life, to a smaller degree with the ecstatic potato broker – but does it really stack up in this case?
The identities of the traders and more importantly, the clients, are not detailed. Would Hamas and its chums have been so stupid as to run the risk of alerting the Israelis by indulging in out-of-the-ordinary share deals? That surely, seems unlikely.
They could be identified and traced, which would not put them in a good position vis a vis a vengeful Israel. The date of the Hamas onslaught was auspicious. It was a Jewish holiday. Soldiers, defenders, they would be off their guard, perhaps visiting their homes. In the past, those intent on waging war on Israel have chosen just these occasions for springing a horrible surprise.
That, after all, was what Hamas was preparing previously, back in April. It would not require a degree in rocket science to suppose 7 October may be a date ringed on a Hamas calendar.
Then again, Israel could have thought so as well, but didn’t. The country was totally unprepared.
That day, 7 October, was also Vladimir Putin’s birthday. The Russian president has a habit, or so we like to suppose, of celebrating by doing something for the greater glory of his country and himself. It was perfectly likely, therefore, that he would raise the stakes in Ukraine by unveiling a spectacular development, one that could send markets, including Israel’s, downwards.
That was what a senior London investment banker said when I put to him the likelihood of people anticipating the Hamas move. It was, he thought, a nice story but one that would not hold water. The Israelis are saying that as well, rubbishing the professors’ findings. But then it was bad enough their intelligence services not having a clue, but to then learn that some investors did, and the evidence was there, in share dealings… that would be utterly humiliating.
Despite the evidence to the contrary, the tale of the Hamas short-sellers is set to become one of those stories that some people will always choose to believe.