Zagreb Stock Exchange: Croatian Stock Exchange History

At the dawn of modern Europe, it was customary to establish exchanges at which prices were agreed and trading took place on the basis of samples. The oldest exchange was founded in Amsterdam in 1602. The first exchange of the Habsburg Monarchy was established in Rijeka for the purpose of trading in different sorts of sugar sold by the Rijeka refinery between 1750 and 1803. Subsequently, it became common practice for each state to have no more than one exchange, so one such exchange was established in Vienna in 1771. After the Habsburg Monarchy was divided into the Austrian and the Hungarian part in 1867, another exchange was also established in Budapest.

Croatian regions were split between the Austrian and Hungarian part. However, the Croatian-Hungarian Compromise granted a certain level of autonomy to Croatia and Slavonia, even though not in the field of economy, trade and transport, which were governed by the government in Budapest. Anxious to gain as much independence as possible, Croatian businessmen were striving to form the fourth economic department, so they founded an Association of Industrialists and Merchants of Croatia and Slavonia under the auspices of the Chamber of Commerce. The Association also spurred the establishment of the Commodities and Valuables Division in 1907. It was inaugurated by Milivoj Crnadak in the building of the Chamber of Commerce (in the spot currently occupied by Hotel Dubrovnik) on 15th June, 1907. S. D. Aleksander headed the division, which effectively launched the market in the stocks of local factories and financial institutions that major exchanges in Vienna and Budapest would not admit to trading. This Exchange was active until 1911, when its operations were closed down by the ruling Croatian-Serbian coalition that saw Croatia and Slavonia as constituent parts of a new Southern Slavic state with a centre in Belgrade. Since 1st January, 1895, Belgrade had had a separate Exchange that supported the expansion of Serbian capital to Croatia.

The Zagreb commodities and valuables division of the Chamber of Commerce received a new impetus secretly in the course of 1917, when plans to reorganize the Austro-Hungarian Monarchy were revived under the new emperor. But the war and requisitions restricted its operations until 4th June, 1918, when the Exchange was reopened. Its operations intensified during the short existence of the State of Slovenes, Croats and Serbs (known as the SHS) that saw the founding of the Croatian National Bank as well. A Board made up the most excellent representatives of banks, industrialists and traders was formed to draft the Rules and other essential exchange regulations, which the SHS State Government – or People’s Council, approved only a few days later. But following the unification, trading on the Exchange was suspended because of a long delay in the issuance of its operating licence by the Belgrade government of the Kingdom of Serbs, Croats and Slovenes. The Zagreb Exchange operated according to the Rules approved by the People's Council until provisions of the Serbian Act on Public Exchanges began to apply to it too under the King’s decree No. 11322, dated 11th September, 1919.

After World War I, the Zagreb Exchange actually reopened on 4th June, 1919, its securities department first. The commodities department began to operate on 1st August, 1919, followed by the Exchange Court of Arbitration in September 1919. This Exchange was subordinated to the Ministry of Trade and Industry; it held all the rights appertaining to corporations including organization autonomy and its purpose was to facilitate and regulate trade in various kinds of commodities, securities, drafts, money (foreign currency and notes) and precious metals. The Exchange was supervised by a Ministry of Trade and Industry commissioner.

The Exchange and its operations were administered by a 24-member Exchange Council, elected by the Shareholder Assembly for a period of three years, and every year a third of new members was elected. The Exchange Management Board appointed authorized brokers who had to adhere to special rules. The Exchange Council appointed a special commission to set the official rates of local securities, while the circulation of foreign securities depended on the approval of the Ministry of Trade and Industry.

The Zagreb Commodities and Valuables Exchange cooperated with the Belgrade Exchange in such a way that its daily meetings were held one hour after those in Belgrade with the rates in Belgrade affecting those in Zagreb. Access to the Exchange with a right to deal was granted to members, namely, registered firms admitted to membership by the Exchange Council that paid an annual membership fee of 1200 crowns. All the Exchange members had equal active and passive voting rights in the elections for the Exchange Council and Court of Arbitration. However, exchange deals could only be closed by brokers, who were experts supposed to draw up appropriate agreements. The Exchange welcomed guests paying a 50-crown admission fee, but they were only allowed to buy a ticket valid for three days and even then only upon reference by an Exchange member. Guests were not entitled to bid, with Exchange members able to do it any time.

Brokers were appointed in line with the 1875 Trade Act and had to pay a 10,000 crown deposit. They were not allowed to trade for their own account and they were held accountable under provisions of the Civil Code. In 1921, the Zagreb Commodities and Valuables Exchange had 18 authorized brokers in the securities, currencies and notes department, and only four in the commodities department.
Interestingly enough, almost all trace of this old Exchange has been lost in the professional literature of the Yugoslav monarchy which always mentions that the Zagreb Commodities and Valuables Exchange was established in September 1919. And it was in that year that the Zagreb Commodities and Valuables Exchange enjoyed the trust of foreign clients, those from Vienna and Prague, and a number of financial transactions were conducted through it, forming exceptionally strong foundations of banking and finance in Zagreb. However, export restrictions weakened the Exchange’s commodities business, while Minister of Finance Stojadinović’s term in office brought further restrictions on its currency department as all foreign exchange and currency operations had to be conducted through the National Bank in Belgrade, which began to operate as the central bank early in 1920. Starting from 1923, the dinar became the only recognized currency. It was exchanged at the rate of four crowns to the dinar, but the crown maintained any value in payments only in the Western half of the new Yugoslavian state. Such erratic trade and currency relations, coupled with duality of the money, had a negative impact on the Zagreb Commodities and Valuables Exchange. In 1920, its turnover stood at 2,400,000.00 crowns and continued to drop. The Belgrade Exchange monopolized foreign exchange and currency transactions, affecting the work of the Zagreb Commodities and Valuables Exchange through the Ministry of Trade and Industry.

It is interesting that in 1922 the following state securities were officially listed: coupons of the Kingdom of Serbs, Croats and Slovenes (6%), Croatian-Slavonian regal bonds, Croatian-Slavonian land bills of unlading, a lottery loan (2%), tobacco tickets, a converted loan dating back to 1895, a 1909 and a 1913 loan, a 1917 Slovene state loan, along with the stocks of 31 financial institutions and 28 factories, as well as trading and transport companies. Debentures issued by the City of Zagreb were also listed, as well as mortgage bonds and municipal bills issued by some of Zagreb’s financial institutions. The Exchange admitted to trading the sorts of commodities that were sought on the market, mostly cereal crops, flour and colonial goods, but then the situation changed markedly after 1924. The execution of contracts was defined very strictly in terms of time, and commodities in spot sales had to be delivered the very next day or within eight days if outside Zagreb. The Exchange charged a fee of 1.2 ‰ in stocks, foreign exchange and currencies trading, and brokers also paid a certain sum to the Exchange. Brokers in commodities trading were paid 2 ‰ by each side, with 0.5 ‰ going the Exchange. Meetings for stocks, foreign exchange and currencies were held between noon and 1.p.m. every day except Saturday and Sunday, while commodities meetings were held daily around noon with the exception of Sundays.

Provisional regulations on exchange operations existed until the Exchange Act was passed in mid-1930s.

Vibrant economic life of Croatia, reinforced by moderate inflation, still brought high earnings to the Zagreb Exchange. After World War I, it moved to the new Chamber of Commerce building (Jurišićeva 1) while from 1st July, 1922, it operated on the first floor of the «Isis» joint stock company premises in Hatzova 154. Despite all kinds of restrictions on the Exchange operations and the appointment of an administrator in August 1922 to prevent fictitious exchange rates and alleged money laundering, the Exchange earned sufficient amounts of money to begin the construction of its new building. In 1923, architect Viktor Kovačić won the first prize for design but since he died in 1924, the building in Ulica Račkog 1 was finished by Hugo Erlich. The new Exchange opened for business there on 18th June, 1927.

An increasingly restrictive policy towards the Exchange spurred the Minister of Trade and Industry Ivan Krajač, who was a member of Stjepan Radić's Croatian Peasant Party (HSS), to ask toward the end of 1927 that a new, comprehensive act on exchanges be drafted. Since the Novi Sad Products Exchange began operating in 1920, followed by those in Ljubljana and Sombor in 1924, Minister Krajač sought to establish an equal legal basis for the operations of all exchanges in the country. But the act was not adopted until as late as mid-1930s and granted reduced rights to the Zagreb Commodities and Valuables Exchange compared to the Belgrade Exchange. Nevertheless, the Exchange managed to survive until 1945, although a larger part of its building was being let in order to cover the losses incurred during a crisis of private banking with which it maintained very close ties.

Some of the most prominent and distinguished figures of Croatia’s financial and economic scene took part in the management and operations of the Zagreb Exchange. They included Milan Vrbanić (who subsequently headed the Chamber of Commerce and Crafts in Zagreb, and became the Minister of Trade and Industry in 1935), Stanko Šverljuga (Minister of Trade and Industry in 1929) and Ivo Belin, who was the Exchange secretary from 1924 to 1945 but also held the post of Vice-Governor of the National Bank in Belgrade between 1935 and 1945. By 1935, Belin had published a series of articles on the problems of the Croatian currency in «Nova Europa» («New Europe») magazine, and certainly helped sustain the Exchange, whose turnover vacillated from 81 million dinars in 1919 to three and a half billion in 1930, a billion and a half in 1939 and six and a half billion kuna in 1943.

Since the Exchange as a speculative institution had no place in the socialist society, its operations were suspended in 1945.

Mira Kolar-Dimitrijević, PhD, on the occasion of the 10th Zagreb Stock Exchange Anniversary, 2001