The Beginning and End of the Amsterdam Stock Exchange

City of Amsterdam

Amsterdam

Long before the New York Stock Exchange was even a dim possibility, the Amsterdam Stock Exchange reigned as the world’s leading market for the trading of securities. Though stock transactions took place elsewhere prior to its creation, the Amsterdam Stock Exchange was the first financial institution established specifically for the purpose of buying and selling securities.

The Amsterdam Stock Exchange was created in 1602 by the Dutch East India Company (the Verenigde Oostindische Compagnie or VOC in Dutch). In its time, the VOC was an extraordinarily powerful corporate entity. In 1602, the States General of the Netherlands granted the VOC a special charter over trade affairs in Asia; this charter gave the VOC quasi-governmental authority and expanded its influence many times over. The stock exchange in Amsterdam was created in order to encourage investment in the activities of the VOC. Before 1602, the market which eventually became the Amsterdam Stock Exchange had only dealt in commodities.

The creation of the stock exchange proved to be an incredibly successful mechanism to stimulate investment in the VOC. Interested parties flocked to the exchange and paid considerable sums for a stake in the company’s endeavors. Dividends were periodically paid out to shareholders in order to incentivize future investment. Investors were given the option of selling their shares to a third party. As a result of this option a secondary market rapidly developed in which investors sold shares to outside third parties. These third party transactions were recorded by an official bookkeeper. This “official” secondary market allowed securities trading to flourish and the stock exchange gained an increased level of importance.

In 1623, the first charter granted by the States General of the Netherlands expired and a second charter was promptly implemented. This charter enabled the stock exchange to flourish still further. The success of the stock exchange ultimately led to the development of “trading clubs” and other such sub-markets in which securities were bought and sold. Potential investors began to seek out information from experienced traders in order to maximize their investment opportunities. Hence, the market in Amsterdam during this era came to resemble modern stock markets in many respects.

In 2000, the Amsterdam Stock Exchange formally merged with the stock exchanges of Brussels and Paris to form Euronext. The market in Amsterdam is now known as Euronext Amsterdam.

Though we are far removed from the days when the Amsterdam Stock Exchange reigned supreme, it is important to occasionally glance back and remember where our modern stock markets come from. If you were an ambitious businessperson four hundred years ago, in many ways it would’ve been helpful to learn Dutch!

Image credit: mauro

If you’re thinking about starting a business which may one day wind up on the stock exchange you should view this presentation

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Seattle CPA+John Huddleston has written extensively on tax related subjects of interest to small business owners. He is a graduate of Washington State University and the University of Washington School of Law.

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