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

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Amsterdam as the principal market for Baltic grain, herring, and other bulk commodities. Once the Peace of Spyer (1544) had secured a clear transit through the Danish Sound for Dutch shipmasters, merchants from Hanse towns and Antwerp started buying grain in Amsterdam. 30 By 1560 annual imports of Baltic grain amounted to as much as 3 million guilders. 31 Just like exchange rates in Antwerp, Amsterdam prices for wheat and rye were quoted every day of the year. 32 In 1556 the city confirmed the custom that prices of every transaction over ½ last grain (roughly 1,500 liters) had to be reported to one of the two town’s bellmen. The bellmen would then proceed to present a sample of the merchandise and announce the price to other grain dealers. 33 Between 1545 and 1570 the forward trade in grain changed from seasonal advances to producers, to regular transactions in cargoes on board ship or stored in overseas ports. 34 Besides purchases of wheat and rye that had yet to be harvested (int groenen, litt. still green) 35 , Amsterdam saw the development of what was referred to as stellage, a forward contract for grain that could be annulled after a certain time had passed if the prospective buyer paid a premium to the grain’s seller. 36 There were also merchants who paid a premium in advance to secure the right to buy or sell a certain quantity of grain at a certain price after a certain period of time. 37 The various contracts for future delivery probably matured at regular intervals. 38 Information about the various kinds of transactions has been handed down because of the upheaval they caused in years of bad harvests. In 1556, Amsterdam’s sheriff Willem Baerdes accused German and Flemish merchants of “the great evil” of driving up prices through forward contracting. 39 When prices soared in the second half of 1556, Amsterdam grain dealers sought the cancellation of forward contracts concluded earlier that year. 40 Antwerp merchants protested, arguing that existing bans on forward trading did not refer to foreign grain. If the central government were to ban forwards anyway, it should at least respect existing contracts. On December 31, 1556, the Brussels government honored the latter request, declaring void only contracts “which had not been effected yet”. 41 Still, rulings could not stop forward contracting, as the renewed bans on grain forwards issued in 1565 and 1571 demonstrate. 42 Moreover, derivatives spread to markets for other bulk commodities. By the end of the sixteenth century the volume and volatility of the Dutch herring market were sufficient for regular forward trading to emerge. Total herring sales rose from less than 1 million guilders around 1550 to more than 3.5 million guilders in 1600. 43 Annual and monthly prices, collected by Posthumus for the fifteenth through to the eighteenth century, leave little doubt 6
that prices were sufficiently volatile for forward trading to emerge. 44 At the same time, the variability of catches and the considerable capital needed to equip herring busses, put a premium on finding devices for risk management. 45 The only obstacle remaining was the limited fungibility of herring. However, once in 1582 and 1584 the Board of the Great Fisheries had put down clear specifications for the maturity of the herring, the time of year it was caught, and the way the fish was processed, forwards and options in the herring trade quickly followed. 46 The precocious development of derivatives notwithstanding, contracts for future delivery did not become commodities in their own right. Neither Antwerp nor Amsterdam boasted a derivatives market in which outside investors, not involved in trading the underlying assets, traded futures or options. Perhaps the Dutch Revolt prevented the market’s further evolution after 1568, but it seems more likely that the very nature of the grain trade arrested the development of derivatives trading. 47 The absence of a regular price current before 1585 meant that only insiders were able to monitor price fluctuations at the exchange, judge the value of contracts, and take up positions accordingly. 48 Moreover, the government was very keen to guard against manipulation of the trade in staple foods such as grain, fearing the social unrest which might follow price increases. 49 Repeated official bans on forward contracts stipulated that, once discovered, the seller of grain had to repay the proceeds of the forward transaction to the buyer. This created an incentive for sellers to renege on the contract once market prices rose above the price agreed upon in the contract, the very action taken by Amsterdam grain dealers in 1556 which led to the Antwerp merchants complaining in Brussels. Conversely, buyers would be tempted to do the same when prices dropped. 50 Even if this kind of regulation could not keep grain dealers from speculating, it made forwards and options too risky investments for outsiders. 3. The Dutch East- and West-India Company One alternative for basic foodstuffs as a vehicle for derivatives trading might have been the negotiable bonds issued by cities and states. 51 As early as 1262 the Venetian Republic issued forced loans or prestiti. 52 Similar paper claims were introduced in Genoa and Florence at about the same time. 53 These bonds, in effect subscriptions to the registers of their respective loan offices, were regularly traded in the fourteenth and fifteenth century, sometimes with the help of specialized brokers. 54 Account books of foreign investors in public debt in the early fifteenth century reveal regular price fluctuations in this secondary market. 55 Still, there is 7
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Page 11 and 12: 400 and 550, with marked troughs on
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