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

and West India companies (VOC and WIC) first emerged, complete with standard printed
contracts and set rules. In 1688, Joseph Penso de la Vega published a detailed description of
this phenomenon in his justly famous Confusion de confusiones. 6 With the Glorious
Revolution of the same year, derivative trading techniques spread to London through the
Amsterdam bankers and traders which followed in William III’s wake.
The subsequent evolution of derivatives trading is well documented in the work of
Charles Wilson, Peter Dickson, Larry Neal, and Ranald Michie. 7 However, we still know very
little about developments prior to 1688. De la Vega gave many details on the various trading
techniques used by contemporaries, but provided no historical survey. During the first
decades of the twentieth century, economic historians have filled at least part of this gap in
the historical record. André Sayous, Willem Unger and Johannes van Dillen explored the use
of forwards and options in the grain trade in the sixteenth century. 8 Van Dillen also collected
extensive evidence on speculative trading in VOC shares around 1610. 9 Likewise, Nicolaas
Posthumus gathered pamphlets, placards, and notarial deeds relating to the famous tulip
mania of the late 1630s. 10 These historians shared the negative opinion of speculation
mentioned above so their work, however impressive, does not amount to a balanced and
judicious description of derivative trading. Moreover, several key questions still remain
unanswered. To what extent did speculative trade in VOC shares modify existing practices of
forward trading in grain, herring, and other bulk commodities? When did futures and options
for securities and commodities become standard vehicles at the Amsterdam exchange? And,
perhaps most importantly, how did derivative trading techni ques evolve in the face of public
hostility which gave rise to repeated official bans on short selling? How did traders manage to
create effective rules governing contracts, clearing, and the transfer of counter-party risk?
This paper explores why and how a full-fledged market for futures and options first
developed in Amsterdam in the early seventeenth century. The argument unfolds as follows.
First we introduce forwards, futures, and options, and explain what is required in theory for
these derivatives to emerge (Section I). In section II we trace the origins of forwards and
options in commodity trade in the Low Countries. Section III reconstructs the brisk market for
derivatives that developed after the establishment of the VOC and WIC in 1602 and 1621.
Section IV analyzes the contracts and clearing facilities in use in the first half of the
seventeenth century. An epilogue in Section V rounds off the argument.
1. Forwards, Futures, and Options
2