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The World’s First Stock Exchange Page 277 (286 of 305)
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Glossary
“only” 1449 1/6 percent had been paid. The latter category consisted of
shares whose owners had not yet been to East India House to collect their
dividend. These shares still gave entitlement to a payment of 331⁄3 percent.
The price these shares were trading at was therefore 331⁄3 points higher.
All the share prices referred to in this book are ex-dividend.
Forward contract: A contract in which the buyer undertakes to pur-
chase a share from the seller at a preagreed price on a specified date. The
seventeenth-century traders settled their forward contracts by transferring
the share at the agreed price, by paying the difference on the settlement
date between the forward price and the market price at that moment of
the VOC share, or by canceling out the contract against a reverse contract
(a trader who had bought a forward contract could, for instance, cancel it
out against a similar contract he had sold). See also derivative.
Haircut: The margin subtracted from the market value of an asset that is
being used as collateral. The size of the haircut reflects the perceived risk
associated with holding the asset. In the seventeenth century it was very
rare for the full market value of a VOC share to be lent. Lenders applied
a haircut to reduce the chance that the value of the share given as security
would drop below the capital sum loaned as a result of a fall in the price.
See also share collateral.
Investment sentiment: The inclination of a dealer to buy or sell.
Liquidity: The tradability of a share. If a share is liquid (in other words
if there is a liquid market for it), it can easily be traded. In other words
a dealer has little difficulty buying or selling a share. The liquidity of a
share is also determined by the extent to which transactions influence the
price. If, for instance, an order to sell a large number of shares brings the
price down little, if at all, that share is very liquid.
Market maker: A dealer who is always prepared to buy or sell shares. A
market maker earns money because he buys shares for just under the mar-
ket price and sells them for a price just above it. Market makers ensure it
is always possible to trade in a share. In the seventeenth-century market
for VOC shares they provided an important service to shareholders who
wanted to sell shares for which there was little demand. The only shares
that were widely bought and sold had a nominal value of 3,000 guilders
(or a multiple thereof). Market makers ensured that shares with nonstan-
dard nominal values could also be traded.
Market value: The value of a VOC share on the stock exchange. A share
with a nominal value of 3,000 guilders (at the baseline of 100 set in 1602)
had a market value of 6,000 guilders at a share price of 200.
Naked short selling: Naked short sellers sold shares they did not own.
They undertook sales transactions while their account in the VOC’s books
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