September 11, 2001: Unusual volumes on Put Options just before the attack. Swiss study

Says the 11 September 2007 issue of Les Echos, the leading French financial newspaper ]

The paper continues:

Six years after the attacks, a study has been released by two professors of the university of Zurich on the atypical volumes of put options placed before the attacks on World Trade Centre.

The authors, one specialist in derivatives, the other a specialist in econometrics, studied the options to sell (put options), used to speculate on the fall in the price of 20 large American groups.

(Read the full the French article below – Lesage translation)

“Atypical volumes, very rare on certain titles, lead to suspicions of insider trading. " Six years after the attacks of World Trade Center, it is the disconcerting conclusion of a recent study by Marc Chesney and Loriano Mancini, professors at the University of Zurich.

The authors, one a specialist in derivatives, the other a specialist in econometrics, worked on the options to sell, used to speculate on the fall, of 20 great American groups, in particular in aeronautics and finance.

Their analysis relates to the transactions carried out between the 6 and September 10, 2001 compared to the average volumes recorded over long period (ten years for the majority of the companies).

The two specialists, in addition, calculated the probability of several options of the same sector having significant volumes in a few days.

"We tried to see whether the movements recorded on certain titles little before the attacks were common. We show that, for certain companies like American Airlines, United Airlines, Merrill Lynch, Bank of America, Citigroup, Marsh & McLehnan, movements are scarce from a statistical point of view, a fortiori in comparison to the volumes observed for other values like Coke or Hewlett-Packard, explains Marc Chesney, a former professor with (the prestigious business school) HEC, author of "Money Laundering and Financing of Terrorism" (published by Ellipses Editions).

“For example, 1.535 contracts of options to sell in the term October 2001, with 30 dollars, were exchanged on American Airlines on September 10, against a daily average of approximately 24 contracts over the three previous weeks "the fact that the market is bear at the time" does not explain enough these surprising volumes "

"Enormous" profits:

The authors also studied the profitability of the options to sell, and of purchase, for an investor having bought a product between the 6th and the 10th "For certain titles, the profits were enormous. For example, investors having acquired options to sell of Citigroup with a maturity at October 2001 could potentially have gained more than 15 million dollars ",He said.

The conjunction of the data between volumes and profitability, the two authors conclude "the probability that there were offences of initiates (insider trading) is strong for American Airlines, United Airlines, Merrill Lynch, Bank of America, Citigroup and JP Morgan.

It is not a legal proof but it is the findings of statistical methods confirming signs of irregularities ".

The study is certainly not the first on possible insider trading in connection to the attacks but it is disconcerting in comparison with the conclusions of the regulatory authorities. As of September 2001, the Securities Exchange Commission and its European counterparts were interested in the atypical stock exchange movements before the attacks.

In an official statement of July 2004, the American regulator stated that it examined more than 9,5 million transactions in the weeks preceding September 11, then delivered its conclusions to the National Commission on the terrorist attacks (The 9/11 Comission).

According to this commission, unusual transactions certainly took place but each had a non-criminal explanation. The authorities evoke, for example, analyst’s investor advice to explain certain rises of volumes.

Same tone from the ex-COB now the AMF (French SEC), which states in its annual report of 2002: "the elements obtained forbid to show any evidence that financial groups related to the instigators of the attacks could have used the Stock Exchange to realise operations"