Amsterdam as the cradle of modern futures and options trading ...

in early spring, and then sold for delivery after they had been lifted from the soil in the early
Summer. As demand pushed up prices, futures and options began to replace forwards. By
1635, trade had changed from seasonal transactions in particular bulbs, to year-round futures
dealings in lots assorted by variety and by weight. To organize the market bulb growers
started trading clubs run by a board and administered by a bookkeeper. 102 These inn-based
trading clubs are usually portrayed as the paradigm of speculative excess, dens of iniquity in
which professional traders luring hapless punters to speculate beyond their means with free
wine and tall stories of gain. 103
However, there’s a sober truth behind the vivid scenes of drunken dealings in thick
tobacco smoke. 104 The sessions were soundly organized to prevent any trouble arising from
dodgy deals. On entering the inn, customers wishing to participate had to introduce
themselves to the bookkeeper, who then gave them a slate with their name written on it for the
bidding. The bookkeeper also tracked all transactions in a ledger for settlement through
clearance at the end of the evening. Trade centered on what the Germans call
Differenzgeschäfte, the settlement of payments by cancelling out mutual claims. A small
charge was levied on sales to cover expenses. The market for ducaton shares in the VOC
which had emerged by 1650 used an identical organization, with an appointed bookkeeper
tracking and clearing transactions, with the participants settling the price differences. 105
The tulip trading clubs proved very effective in smoothing transactions. Nearly all
notarial deeds contesting deals gone sour document transactions done outside a club, and thus
not subjected to monitoring boards. 106 We may therefore conclude that the clubs acted as the
moderators of speculation, and not as drivers.The aftermath of the Tulipmania demonstrates
just how wide the fundamentals of derivatives trading had spread. The Court of Holland
refused to hear litigation cases issuing from tulip sales, judging them to be bets under Roman
law. 107 It was left to individual city councils to clear up the confusion surrounding deals
collapsed after the bubble had burst in February 1636. The official adjustments by local
authorities tarred all tulip transactions still to be completed with the same brush, transforming
them into options. Buyers were no longer obliged to complete, receiving a call right in return
for a premium varying from 3.5 to 10 per cent, depending on the city. 108 This transformation
demonstrates first of all that by the late 1630s, city councils were sufficiently familiar with
derivatives trading both to understand the core of the problem, and to come up with an
imaginative solution. Secondly, private and more or less informal arrangements sufficed to
provide derivatives trading in commodities with a sound infrastructure to reduce the risk of
bad deals and non-compliance. In the absence of firm documentary evidence, we can only
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