2 CONTRACT ENFORCEMENT ON THE WORLD’S FIRST STOCK EXCHANGE Lodewijk Petram
Introduction After the founding of the Dutch East India Company (VOC, 1602), a thriving secondary market for company shares developed. The VOC was certainly not the first company in history that issued shares, but now for the first time all necessary preconditions for the development of a secondary market were present: the company stock was sufficiently large, a high number of shareholders subscribed to the stock,1 there was a clear rule for the transfer of ownership of a share, and, perhaps most importantly, the company would stay in business for almost two centuries.2 This was a major difference with earlier equity-financed companies. These companies, which were also for the most part shipping companies, usually existed for the duration of a single voyage only; when the ships returned from their destination, the company was liquidated and the proceeds were distributed among the shareholders. It is not hard to see how the longevity of the VOC created an incentive for its shareholders to occasionally transfer a share. The majority of shareholders did not want their money to be locked up in the company for an indefinite period of time and they therefore traded their shares if, for example, need for cash forced them to do so. This is exactly what shareholders did in the first decade of the seventeenth century. The bookkeeper of the Amsterdam chamber of the VOC registered 368 share transfers in 1609. Figure 2.1 shows the value of these transfers and how they were spread over the year. Comparing this graph to Figure 2.2, which depicts the number and nominal value of share transfers in 1639, yields one obvious conclusion: the number of share transfers per year had almost doubled. This is only part of the story, however, since the number of active accounts3 was lower in 1639 than in 1609.4 Put another way, fewer shareholders now accounted for almost twice the number of share transfers.
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