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Home , Beirut Stock Exchange, Iraq Stock Exchange, New York Stock Exchange, Stock exchange

WA R WITHINWA R ROOMS ZONES attempts to create a exchange in the midst of violent chaos

By Claudia La Rocco

Many of the larger in Mogadishu, including the bottling plant, have , although there is of course no or financial authority of any sort in the . Everything is based on trust, and so far it has worked, owing to ’s tightly woven clan net- works: everyone knows everyone else, so it’s less likely that an unknown con man will pull off a scam. In view of Somalia’s history, S I this ad hoc stock is not as B R O C

implausible as it may sound. Until a / a t i h century ago, when Italy and Britain s a m divided what is present-day Somalia a Y

. S into colonial fiefdoms, Somalis got l e a h c along quite well without a state, rely- i M ing on systems that still exist: infor- Trading on the Stock Exchange, 1999. mal codes of honor and a means of resolving disputes, even violent ones, after nearly a decade of civil war in Kuwait in August of 1990, the through mediation by clan elders. . It reopened in 1995. Kuwait Stock Exchange in Kuwait –Peter Maass1 During World War I, the London City was forced to close. The eight- Stock Exchange shut its doors from story building escaped major damage Cutthroat deals, take no prisoners; July of 1914 until the following year. during seven months of occupation, war rooms; the language of combat Of the 1,600 men who volunteered though Iraqi troops did make off is often used to describe the world of for the Stock Exchange Battalion of with a $5 million computer. . But throughout history, the Royal Fusiliers, 400 did not return. But systematic looting only got as far clichéd comparison has been no mere World War II caused shorter disrup- as handwritten notes placed on metaphor for many stock exchanges. tions. In 1939, the bourse closed for everything from furniture to paint- The crippling or disruption of just six days, reopening on Septem- ings. exchanges by wars is nothing new, ber 7. It wasn’t until 1945 that the “Thank God there is no stock from the Stock & exchange closed again, this time market in Baghdad. That would have Exchange Board suspending trading when a V2 rocket damaged the decided who got all this,” the in seceding states in 1861, to the building. solved this prob- exchange’s deputy director general, arduous history of the Belgrade lem by relocating to the basement Abdullah Al-Sederawy, told USA Stock Exchange, to the 1983 suspen- the next day. Today reporter James Cox, explain- sion of the Stock Exchange When invaded ing that the contents of the building

Financial History ~ Winter 200620 www.financialhistory.org were not transported to the Iraqi since World War I. No one knew deterioration caused by a succession capital because Kuwait was liberated what to expect when the markets of wars; a decade of international before two feuding Iraqi ministries reopened; some feared would sanctions; and the looting and sabo- could decide who would get what.2 tumble, while others predicted a tage that followed the 2003 war, the Still, other companies did suffer patriotic response. US government set its sights high heavy losses. The bourse did not Neither the NYSE nor the elec- after toppling Saddam Hussein; to reopen until the fall of 1992, and tronically-based were physi- create a liberal, market-based Iraqi then it did so as a shadow of its for- cally damaged, but a telephone , a key piece of its broader mer self, as the country’s economy switching operation was destroyed, goal to bring democracy to Iraq. sorted through the wreckage left by cutting off some communications —Bathsheba Crocker3 Saddam’s army. systems needed for trading. The Still, however daunting, the task American Stock Exchange, just a of rebuilding was a discreet one; the half-block from the World Trade It will be to their fortune if they do was vanquished, the Center site, did not escape (invest). Iraq is one of the richest threat repelled. Kuwait’s financial unscathed. It resumed stock trading countries in the world. Give me secu- institutions could proceed, relatively on the NYSE, and options trading on rity and a little time, and you will see. secure in their belief of a peaceful the Philadelphia Stock Exchange, —Talib Tabatabai, Chairman of the future. Increasingly, this is not the while construction crews worked to Iraq Stock Exchange4 case. clear the building of debris and Markets rarely thrive in uncertain worked on safety and access issues. When something blows up or conditions. As both actual wars and This resumption, on Monday crashes in Iraq, there isn’t much sus- business have become more global morning, was both somber and defi- pense over whether it’s an accident or affairs in recent history, and terror- ant. A heavy police presence, includ- a deliberate act of destruction. In the ism continues to erase the line ing bomb-sniffing dogs, reinforced midst of so much violence, it would between battlefield and civilian activ- the feeling of a city under siege. Bags seem impossible to create the condi- ity, have had to adjust to were checked and those entering the tions necessary for a viable stock ever-higher levels of uncertainty. building had to pass through metal exchange to exist. But, as Peter Maass’ Exchanges cannot simply close their detectors. The stars and stripes were reporting on the incredible situation in doors and wait for the violence to draped across the white columns. Mogadishu demonstrates, what seems end. Instead, both psychologically Four years later, New Yorkers like insurmountable chaos can pro- and through tangible mea- have grown used to bomb scares, vide enterprising businessmen with sures, they must adjust to a world in building evacuations and random surprising opportunities. which the ever-present threat of searches. For many, despite occa- Now, the world watches as the attack is commonplace. sional jitters during the morning sub- fledgling Iraqi economy seeks to find In September 2000, 15 people way commute, a new sort of fatalistic its footing and the fledgling nation were killed when a bomb exploded in complacency has set in. For months seeks to find its way out of a war the underground parking lot of after the attacks, though, the city, zone. For many, such as Iraqi Indus- ’s struggling exchange. The especially its financial heart, try Minister Hajim al Hussani, the week- closure of the bourse gar- remained raw. On November 12, two are inextricably linked: “The nered very little attention from the when American Airlines Flight 587 way to eliminate [the insurgency] outside world, which likely dismissed crashed into a city neighborhood will only be by creating job opportu- it as just the latest political violence shortly after take off, killing 265 peo- nities in the private sector. And the in ’s troubled history. ple, everyone assumed it was another development of the private sector The response was far different a strike on New York. The Dow depends on the improvement of the year later, on September 11, when plunged as much as 198 points in security situation.”5 two hijacked planes brought Amer- early trading before investors learned The old Baghdad Stock Exchange ica’s financial center to its knees. The terrorism likely wasn’t the cause. (BSE) existed for about 11 years , Nasdaq under Saddam Hussein, who created and American Stock To establish even a marginally func- it in 1992. Initially consisting of 64 Exchange shut down that Tuesday tioning economy out of the wreckage companies, the exchange grew to morning, and remained closed for of Iraq would have been a daunting include at least 114 companies, as the rest of the week. It was, as widely task. Despite decades of a heavily reported by Maher Chmaytelli of reported, the longest halt in trading controlled, state-run economy; the Agence Presse, in an article

www.financialhistory.org21 Financial History ~ Winter 2006 S I B R O C / s r e t u e R / l o o P / n a h K

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Iraqi stock walk past a bell presented by the Philadelphia Stock Exchange in commemoration of the opening of the Iraq Stock Exchange, July 18, 2004. from November 3, 2002. At that Jamil Qays were optimistic: “It will month.)6 Not surprisingly, certain time, the BSE’s capitalization had end at some point, demand will people’s portfolios were more suc- grown to 274 billion dinars ($137 resume, along with production and cessful under this system than others. million), up from one billion dinars profit. Think long term.” Still, trading continued until just in 1992 (about $20 million). Mark- Three years later, many Iraqi before the US-led invasion of Iraq: ers and white boards were used to investors and foreign observers are “‘The brokers were all waiting for mark transactions, “with traders saying the same thing. Under the old the bombs to start dropping,’ said watching through opera glasses.” regime, the Baghdad Stock Exchange Siro Pedros, 50, of the Nineveh Bro- Leading up to the , Iraq’s was a haven for cronyism, manipu- kerage Co., who has been a stock- economy was one of the strongest in lated by officials who used it for in Baghdad since 1997. the Arab world. But a 10-year-long money laundering. Rules limited ‘Everyone thought that billions in UN embargo, following the Persian price fluctuations; the Ministry of reconstruction would flood the and the brutal Iran-Iraq stopped trading whenever a country after the war.’”7 War, had decimated the national stock rose or fell by more than 5% of American and Iraqi pre-invasion infrastructure and caused the dinar its value in a session. Taha Ahmed dreams of reconstruction were - to tumble. Faced with the uncer- Abdul-Salam, Chief Executive for lived. Instead, days after the war tainty of the , many the new Iraq Stock Exchange, served ended, looters stripped two key opted for stocks. Even with as research director for the old and the BSE bare; when Jay Hallen, the looming threat of war with the bourse; when he attempted to quit the man hired by the Coalition Provi- , Chmaytelli reported his job, the regime “threatened to cut sional Authority (CPA) to head the that the BSE was holding steady. off his electricity and family food organization of a new exchange, tried Investors such as retired accountant rations.” (Now he works for $830 a to enter the exchange building, armed

Financial History ~ Winter 200622 www.financialhistory.org squatters made it clear that his pres- in October of last year, this didn’t Ph.D. in government affairs from ence was not welcome. stop eager investors, many of whom Florida State University. ‘We know US officials shut the bourse for had met privately to trade shares every inch of every stock. Everybody good in to form a private, non- while waiting for the new exchange is inside.’”10 profit exchange which would be reg- to open: And the rest of the world is on the ulated by brokers and overseen by a “Yet every Sunday and Wednes- outside, waiting to see what sort of . The US day, scores of Iraqis make their way history will be made with markers Agency for International Develop- though vehicle checkpoints and and white boards on the floor of the ment provided months of training to weapon pat-downs to wait for the 10 new Iraq Stock Exchange, or in the the new staff. The new exchange, it am opening bell. They gather in a streets, with homemade bombs and was hoped, would be one of the cen- breezeway outside the front entrance, assault rifles. FH terpieces of an economy that needed protected from the sun by a tall can- to be radically rebuilt from the vas overhang and from intruders by ground up, from privatizing key sec- plainclothes Iraqi guards with shoul- Claudia La Rocco is a freelance tors like oil and mining, to persuad- der-slung AK-47s.… writer. ing Iraqis to participate in a formal “When the exchange reopened in banking system. Still, while the CPA June, after a 15-month hiatus for the References could construct a legal and regula- war, Abdul-Salam and other ISX 1. From “Ayn Rand Comes to Somalia: tory structure for Iraq to follow, it officials were so afraid of attack that In the Absence of Government was up to the new Iraqi government they admitted only 20 investors — Bureaucracy and Foreign Aid, Busi- to follow suit. and no reporters. Since then, holding ness is Starting to Boom” in The Trading on the Iraq Stock their breath, they have allowed the Atlantic Monthly Magazine, May 1, Exchange commenced on June 24, crowd to expand to as many as 250 2001. No. 5, Vol. 287, pg. 30. 2004, complete with opening bell — for each two-hour trading session. a Liberty Bell replica, donated by the There’s no telephone or computer 2. In “Iraqi Tiff Saves Kuwait Stock Philadelphia Stock Exchange. In its trading, so if you want to play you Exchange,” April 4, 1991, Money, first morning of operation, “more have to come in person.”9 2B. than 500 million shares were traded As with the old bourse, transac- 3. “Reconstructing Iraq’s Economy” in — more than the Baghdad Stock tions were scrawled on white boards; Provocations, The Washington Exchange ever achieved — with prompted mainly by security con- Quarterly; Vol. 27, No. 4; pg. 73, shares in just six companies chang- cerns, the exchange had hoped to Autumn 2004. ing hands…12 companies actively switch to an modern electronic mar- 4. Kaplow, Larry. “Iraqis Bullish on traded on the second session on Sun- ketplace, like the Nasdaq, by the end Stock Market” in Atlanta Journal- day, July 4. of that year. Constitution, April 24, 2005, 1C. “Their aggregate price at the But this has yet to occur — along 5. Dilanian, Ken. “Insurgents Cripple end of the morning was $2.66 mil- with predicted foreign investors, who Iraq’s Economy Through Sabotage, lion, up from $2.21 million at the have not materialized in great num- Attacks.” Knight Ridder Washing- start, for a 20% rise, the exchange bers, kept away by continued political ton Bureau, August 1, 2004. said in a statement, adding that 560 instability. Indeed, many Iraqi million stocks changed hands.”8 investors say they do business much as 6. Kaplow The bourse was established in a they did on the old Baghdad Stock 7. Walt, Vivienne, “Iraq Stock converted Italian restaurant partly Exchange. As with many of the CPA- Exchange Trades in Dreams of chosen for its location on a small implemented changes, it remains to be Riches” in The Boston Globe, July side street that could more easily be seen when, or if, reality will catch up 20, 2004, D1. protected from car bombs and rock- to new regulations. 8. Haynes, Deborah, “Iraq Stock ets. Still, it was just one block from “Like other exchanges in develop- Exchange Poised to in ‘Japan’ turbulent Street. Brokers wor- ing countries, there are no prohibi- of Middle East,” Agence France ried about kidnappings, not portfo- tions on what US investors would Presse, July 16, 2004. lios; indeed, fears of attack call ‘.’ Here, who you 9. “Fear Yields to Hope on This Big prompted officials to keep the site know is key to making money. ‘We Board,” Part C; Pg. 1, October 24, secret in advance of the exchange’s are in a highly personalized situa- 2004. opening. But as Thomas S. Mulligan tion,’ said broker and board chair- reported for the Los Angeles Times man Tabatabai, 66, who holds a 10. Kaplow

www.financialhistory.org23 Financial History ~ Winter 2006