Advances in Communication Technology and Growth of the American Over-the-Counter Markets, 1876–1929

Abstract

The rapid development of the nationwide telephone network following the expiration of the Bell patents in 1894, along with expansion of private wire telegraph networks, created the “nerve center” necessary for rapid growth in the decentralized, dealer-intermediated, over-the-counter security markets. Using membership roles from the National Quotation Bureau—the predecessor of the NASDAQ—I link growth in the number of dealers to the expansion of these communication networks prior to World War I. Moreover, trading activity on the organized stock exchanges fell during this period, suggesting that these technologies provided a competitive advantage to the over-the-counter markets.