400 years the story
A brief exchange history of the Netherlands
The Netherlands has been characterized as the ‘first modern economy in the world’ – and with reason. Early 17th century, essential elements of the current Western economic model emerged in the Netherlands. This also applies to share trading: both the stock exchange and the related idea of financing companies through the exchange are 17th-century Dutch discoveries.
Since the 17th century, these origins have proven to be an advantage. In the digital era of the 21st century, the Netherlands – while only No. 133 in the world in terms of surface size – still ranks among the world leaders in the field of securities, and the Netherlands can pride itself on an extraordinarily rich exchange history.
More than 400 years of Dutch exchange history can be told in different ways. This has been done on the basis of particular moments elsewhere on this site. Here, we will guide you through it in four major steps.
Cradle of global share trading (from ca. 1600)
In Dutch exchange history the Dutch East India Company (VOC) plays a key-role. In 1602, it was the first company to go to the exchange, which makes it the founder of the first stock exchange: the Amsterdam exchange. The first initial public offering was no standalone event. Another important innovation preceded it: the invention of the modern company – the limited liability company – by this very VOC.
Stock market capitalism
The Dutch West India Company (WIC) followed the example of the VOC and became the second exchange listed company in 1623. Furthermore, domestic governments were also quick to discover the exchange, and started placing loans here. An early form of stock market capitalism arises in the Netherlands, in which it becomes common practice that companies and governments call on the investing public – albeit still on a limited scale. And it was successful, as the public demonstrated a strong willingness to invest. Although securities trading also took place in Rotterdam as early as in the 17th century, its scope became particularly broad in Amsterdam. So broad, in fact, that the Amsterdam city council saw reason to improve the facilitation of trade in the early 17th century. Amsterdam got a Wisselbank (Bank of Amsterdam), which facilitated the settlement of exchange transactions. A Koopmansbeurs (Merchant Exchange) was also established – the Beurs van Hendrick de Keyser -, which provided a regulated meeting place for traders. It was largely because of these two institutions that in the 17th century the Netherlands – and Amsterdam in particular – developed into the global center of trade and capital provision.
Water: the origin
Why was the Republic of the Seven United Netherlands – then the official name of the Netherlands – the country that became the cradle of the exchange? It’s a question that experts have been speculating on to this very day. Often, the Calvinist thrift- and reliability-oriented Dutch national character is stressed in this regard. The explanation that it had to do with the eternal battle of the Netherlands against water is more striking and distinctive. Because of the constant threat of the country being flooded with water, the Dutch have been accustomed to working together and avoiding floods by deploying collective savings for centuries. This would then supposedly have provided a perfect breeding ground for the roots of stock market capitalism: one can achieve more by collaborating and spreading risks. The fact that the oldest known loan in the world, which still pays interest to this day, is the 1624 bond of a Dutch water board may be called illustrative in this respect.
Other countries following the example
The emergence of stock market capitalism in the Netherlands did not remain unnoticed in neighboring countries. In 1659, London also started a stock exchange in emulation of Amsterdam. From then on, many other countries gradually followed suit.
A wonderful anecdote in this regard dates back to the annus horribilis 1672. The Netherlands was at war with France and England and persuaded German emperor Leopold I to support the Netherlands in exchange for receiving Dutch government bonds. The emperor got a lesson in the workings of the exchange into the bargain. He discovered that the prices of his bonds dropped or increased in accordance with the degree of success he achieved on the battlefield. Besides a clever business instinct, this illustrates that (knowledge on) Dutch stock market capitalism was growing in Europe.
Partly thanks to the emergence of exchange trading, the 17th century – the Golden Age – was a period of unprecedented economic prosperity in the Netherlands. Soon, however, it also became clear that the Dutch idea of shares had a downside. Shortly after the initial public offering of the VOC, a first law regarding share trading was already issued to prevent excrescences in the form of price manipulation and wild speculation. Nevertheless, a real stock market crisis did not occur in this initial period, and moments of prosperity predominated in the 17th century.
Financier of the world (from ca. 1700)
From merchant to banker
The Golden Age produces great wealth. When the Netherlands gradually has to give up its position as the center of world trade in the 18th century, an entirely new role ensued from this: that of financier of the world. Many European sovereigns and countries in search of money were keen to use the wealth of the Netherlands, and they placed bonds on the Amsterdam exchange. In the process, merchants revealed themselves as bankers to their business acquaintances abroad. In 1695, Austria was the first in line. Other European countries, such as Spain, Russia, Sweden, France, and England, followed soon after. Furthermore, the shares of a few English companies, such as the East India Company and the Bank of England, were listed on the Amsterdam exchange in the same period.
In a short space of time, Dutch capital penetrated into every corner of Europe, while also making its way to America from the late 18th century onwards. The fact that in the 21st century, the Netherlands still ranks among the world leaders when it comes to foreign investments finds its origin here.
Criticism of the export of capital
In the 18th and 19th centuries, major export of capital was not entirely uncontroversial – as is still the case today. In the States of Holland, it regularly led to criticism as well as the question whether the lid should be put on it or not – but to no avail. The argument was that to be able to keep enough good investment options, investors simply cannot do without foreign countries. And that was not entirely unjustified, as the domestic supply was still limited in those days because of the trade monopolies of the VOC and the WIC. At the same time, those who now claim that the Industrial Revolution in the Netherlands (in other words: more domestic companies coming to the exchange) got off to a late start because of this very reason have a point. This might be interesting information for today’s policymakers.
The first stock market crisis
The great amount of foreign investments makes the Netherlands vulnerable in economic terms. In 1720, this led to the first stock market crisis. During a short period of time, the Netherlands – following France and England – fell under the spell of private companies which often turned out to be nothing more than ‘wind companies’ later on. Because the authorities in Amsterdam took efficient action, the effect of the first crisis in the Netherlands remained limited – unlike in England and France, where it caused enduring economic disruption.
The first investment fund
A second crisis, coming from England around 1773, caused greater damage and resulted in a range of bankruptcies in the financial circles of Amsterdam. However, there was also a positive side to this story, as there was a growing realization that it is important to spread risks. In 1774, this resulted in a new Dutch world first: the establishment of the first investment fund.
The first exchange organization
The first investment fund was no success. This had everything to do with the turmoil that prevailed in Europe and the Netherlands in the late 18th century. The French Revolution caused tensions, and to make matters worse, trade came to a complete halt due to a naval war with England. The VOC did not survive this. In 1799, its existence came to an end after nearly 200 years. It is not entirely coincidental that in these turbulent and uncertain times, the first exchange organization arose in Amsterdam in the form of the Collegie tot Nut des Obligatiehandels (College for the Benefit of Bondtrading), and another important first was also realized: a price list that published prices on a regular basis.
Doubts about the exchange
The downfall of the VOC and the French period (1795-1813) were the prelude to a period of economic downturn in the first half of the 19th century. Particularly the trade restrictions in the French period had an impact on securities trading. The number of listed funds in Amsterdam dropped and the Netherlands lost its undisputed leadership as a financier of the world. When in 1835 the Beurs van Hendrick de Keyser was forced to close its doors after sustained subsidence, the question even arose whether Amsterdam still needed a new exchange building at all. Also, discord arose within the Amsterdam securities sector, and a competing second exchange organization was established: The Nieuwe Handel-Societeit (New Trade Society).
It can be stated that all of this symbolizes the unpromising situation exchange trading and the Dutch economy were in at that time. The French period had a major impact. The Netherlands was lumbered with a huge debt, and on top of that, it had to virtually make a whole new start as a Kingdom – after the final end of the Republic.
Exchange of the Netherlands (from ca. 1850)
Around 1840, the economic situation was so dire that even a bankruptcy of the Netherlands was imminent. The Amsterdam exchange, however, provided a solution. By refinancing the huge national debt at a lower interest rate through the exchange, the government managed to escape this fate. This way, the foundation was set for a period of economic prosperity from the second half of the 19th century.
Beurs van Zocher
Doubts that had arisen about the significance of the exchange also disappeared. After having had to rough it with a temporary building for ten years, Amsterdam traders finally got their long-desired new exchange building in 1845: the Beurs van Zocher. Here, securities trading still took place among commodity trading, as used to be the case in the Beurs van Hendrick de Keyser. However, securities trading was growing rapidly and gradually developed into the most important trading branch. This was a reason for securities traders to start devoting themselves to a better place to stay and a better regulation of their profession. To be able to take determined action in this regard, they joined forces in the Vereniging voor de Effectenhandel (Amsterdam Stock Exchange Association) in 1876.
Second Golden Age
The growth of securities trading had everything to do with the large influx of funds to the Amsterdam exchange. Especially in the last quarter of the 19th century, growth was tremendous. At first, it primarily concerned foreign railroads, but from about 1890, the number of Dutch and Dutch-Indian funds also increased considerably. The rise in the number of domestic funds was connected with the Industrial Revolution and the emerging business community in the Netherlands. The increase in the number of ‘colonial’ funds resulted from a measure taken by the government in order to allow greater room for private initiatives in the Dutch East Indies. As a result, the number of listed funds in Amsterdam went broke more than eight times between 1865 and 1900 and arrived at approximately one thousand around the turn of the century. It was with reason that this period has also been referred to as the Second Golden Age.
After a long drawn-out discussion, the Vereniging voor de Effectenhandel (Amsterdam Stock Exchange Association) also achieved a first success in its struggle for a better place to stay in 1903. Securities trading got its own trading floor in the Beurs van Berlage, which had its opening in the same year. However, this was merely an intermediate step. Securities trading continued to grow and therefore moved to a brand new place of its own at Beursplein 5 by the end of 1913. The Vereniging voor de Effectenhandel (Amsterdam Stock Exchange Association) finally got what it wanted: its own exchange building as a basic condition for the healthy development of securities trading.
The new building seemed to work wonders. As early as in 1914, two special milestones immediately presented themselves. For the first time, the number of Dutch company funds surpassed the number of government funds. And it was also the first time that the total number of domestic funds was larger than the number of foreign funds. This caused the Amsterdam securities exchange to gradually start serving as the ‘Exchange of the Netherlands,” even though its role as a financing institute of foreign countries had definitely not ended. And, in line with this, the Vereniging voor de Effectenhandel (Amsterdam Stock Exchange Association) developed into the one and only exchange authority in the Netherlands over the course of the 20th century.
Prosperity comes to an end
At short intervals, the Second Golden Age lasted until approximately 1930. The crash of 1929, the crisis of the thirties, the Second World War, and the decolonization (‘the Dutch East Indies are lost, disaster is caused’), respectively, subsequently put an end to the era of growth and optimism. Shortly after the war, the popularity of the exchange hit rock bottom. And it was not the first time in history that doubts arose about the social and economic significance of the exchange.
Scale increase and digitization (from ca. 1955)
To once again raise the profile of the exchange towards investors as well as the business community, in 1955 the exchange started a PR offensive, using the motto, “The prosperity of our country will immensely benefit from a well-functioning exchange system.” The initiative bore fruit: after a while, the number of private investors and the stock market turnovers was on the increase again. And thanks to the contribution made to the financing of the reconstruction, faith in the exchange is gradually recovered as well.
This did not alter the fact that the Amsterdam securities exchange had clearly been forced to give up ground – both nationally and internationally. Therefore, innovation and scale expansion were opted for. In the early seventies, a first step was ‘merging’ the small exchanges of Rotterdam and The Hague with the Amsterdam exchange for the purpose of efficiency. Efficiency was also the goal of a second step taken: the establishment of a central depository company for securities in the Netherlands.
A striking third step was the establishment of the first options exchange in Europe in 1978. The underlying idea was that the options exchange could have a stimulating effect on the faltering turnover figures that the securities exchange as dealing with at the time. The new exchange got its own floor in the Beurs van Berlage. The first years were an uphill battle. Investors seemed hesitant, and moreover, the economy was struggling. In the early eighties, the tide turned. The economy improved, and after a lot of promotion efforts, the public started to better understand and appreciate ‘options’ as a product.
The revival of the economy ensured that options trading became extremely popular in a short space of time. The floor in the Beurs van Berlage could not handle the increasing bustle. Therefore, the options exchange moved into its own larger place at the Rokin 65, which, again, became too small fairly soon due to persistent growth. However, not only options trading was growing explosively. Turnovers within securities trading also rose exuberantly.
The strong growth changed the nature of trade in securities and options: it became increasingly more international. In order to continue to operate effectively within the new international arena, the securities exchange and options exchange associations joined forces in one national exchange in 1997: Amsterdam Exchanges plc. Since this was the first time a public limited company would be driven by profit, this meant that the supervision of the exchange, which was traditionally exercised by the exchange associations, definitively became the responsibility of independent supervisors at this stage.
At the time of the merger, the securities exchange had already switched to screen trading. Therefore, the merger offered a solution to the space-related problem that the options exchange was dealing with at the Rokin. In 1998, options trading took over the large stock exchange floor at Beursplein 5 from securities trading. The options exchange, however, also opted for automation, and in 2002, floor trading in Amsterdam came to a definite end.
The stereotypical image of shouting and wildly gesticulating traders in brightly colored jackets disappeared from the floor. They were replaced with traders who participated in global exchange dealings from behind their computers in relative silence. The fact that a few small options houses, which started in the Amsterdam options exchange (Optiver, IMC), in the 21st century had managed to develop into world players within the global computer market is illustrative of the strong Dutch exchange tradition.
It was not merely the nature of trade that changed with the arrival of computers. The Dutch exchange landscape also got an entirely different look. Automation paved the way for new players: electronic trading platforms that started competing at a price level and developed into serious competitors of the Amsterdam exchange in a short space of time.
To achieve a strong position in the new digital and international arena, Amsterdam Exchanges merged into Euronext with the Brussels and Paris exchanges in 2000. In 2002, the Lisbon exchange and London derivatives exchange LIFFE also joined this first European cross-border exchange. After a merger of Euronext with the New York Stock Exchange, the Amsterdam exchange was part of NYSE Euronext between 2007 and 2014. Following a take-over purchase and a subsequent split up of this transatlantic exchange group, Euronext has been independent again since 2014. Recently the exchanges of Dublin (2018) and Oslo (2019) also joined Euronext.
Whether this means that the ‘international train’ has reached its final destination remains to be seen. There is still talk of mergers and the importance of scale increase. Moreover, there are critical voices. In these cases, it’s not so much about the significance of international mergers. Taking the advancing globalization and digitization into account, this significance is widely acknowledged. It is mainly a question whether the Amsterdam exchange is able to play its familiar role as a financier of the Dutch business community in an international exchange environment.
This field still provides great opportunities for the Dutch exchange sector – more than 400 years after the first IPO of the VOC -, especially now that banks are gradually withdrawing as financiers of the business community.