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The World’s First Stock Exchange Page 276 (285 of 305)
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Glossary
price equals the strike price, the option is said to be “at the money”; the
owner can still exercise the option, but he will not make any profit on it.
An option is “out of the money” if the spot price on the exercise date is
lower than the strike price or exercise price. The option is then loss making,
and the holder will let it lapse.
Derivative: The collective name for “derived” financial transactions. De-
rivatives derive their value from the asset (usually a share, but it can also
be oil, gold, or soya beans) to which they are linked. The derivatives that
share traders dealt in in seventeenth-century Amsterdam were options
and futures contracts. In the case of futures contracts, dealers agreed that
they would trade in a share on a particular date in the future at a pre-
viously agreed-upon price (see also forward contract). Needless to say,
the price was related to the price of the VOC share. A share was only
handed over in the event of settlement, which is why futures contracts are
regarded as “derived” transactions. Options also derived their value from
the VOC share, since the option premium was based on the chance that
a particular market fluctuation would occur. However, what was dealt in
an option transaction was not the actual share but the right to buy or sell
that share at a specific price on a specific date.
Dividend: Profit share to shareholders. The VOC expressed its dividends
as a percentage of the nominal value of the share capital. If the VOC
announced a 10 percent dividend in cash, the owner of a share with a
nominal value of 3,000 guilders could collect a sum of 300 guilders from
East India House. The price at which a VOC share was trading on the
exchange had no influence on the size of the payment the shareholder
received. The VOC also regularly paid dividends in the form of spices or
interest-bearing bonds. See also ex-dividend.
Exchange agent: A dealer who trades for someone else’s account. Ro-
drigo Dias Henriques, who appears in this book a number of times, was
an exchange agent. He received money from his clients (usually wealthy
Portuguese Jews) to buy and sell shares on their behalf. In seventeenth-
century Amsterdam, exchange agents received a fixed fee per transaction.
Ex-dividend: Nowadays shares are said to “go ex-dividend” on the day
after it has been established which investors own a share and are thus
entitled to the dividend. Investors who buy the share after it has gone ex-
dividend are not entitled to the dividend and therefore pay a lower price
for the share. The holders of VOC shares were free to choose when to
go to East India House and collect the dividend they were due. For ex-
ample, shortly after the dividend payment of April 1688 (33⅓ percent in
cash) shares were in circulation on which a 1482.5 percent dividend had
been paid since the foundation of the VOC in 1602 and shares on which
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