The Dutch are associated with some of the more interesting expressions in the English language: double Dutch, Dutch courage, going Dutch, Dutch auction but what is perhaps less well known about the Dutch, is that they were very much at the forefront of financial innovation as far back as the early 17th Century.
For example, the Dutch are credited with launching the world’s first Initial Public Offering (IPO) when the Dutch East India Company offered shares in the company to local residents in 1602. They can also arguably lay claim to the world’s first Stock Exchange and first Central Bank – the Amsterdam Exchange Bank (Wisselbank), which was founded in 1609.
History of the stock market
The existence of the Wisselbank promoted an effective monetary system which when combined with the launch of the first public company, led to the formation of the world’s first stock market for buying and selling shares.
The origins of the first stock market can be traced back to the Netherlands and the Dutch East India Company. When the company was founded, the owners’ charter (articles or shareholder agreement) stipulated that the company would remain in existence for a fixed term of twenty-one years.
It was also decided that the first set of accounts (financial statements) would be prepared after ten years and at that point investors would be entitled to withdraw their investment. However, before the ten years was up, the board of directors realised that they would be unable to prepare and publish the accounts as intended, so investors would be unable to recover their capital by selling their shares as expected.
Consequently, a secondary market in these shares emerged which enabled the first (primary) shareholders to cash in and allow new (secondary) investors to buy and sell shares. For two hours each day, trading in shares was carried out in informal open-air markets.
Trading activity became so popular that a formal exchange was built in Amsterdam in 1608.
Stocks and shares
If learning something about the history of the stock market has sparked an interest in ‘finance’, then you can learn more about the difference between stocks and shares or IPOs and share premiums by clicking here.
