What is an ABC Agreement?

By Chizoba Morah AAA
A:

Brokerage and other financial organizations usually purchase seats or memberships at the New York Stock Exchange (NYSE) for employees and an ABC agreement is a contract between the employee and the purchasing firm and it details the rights of the firm and the employee. When it comes to the seats in the New York Stock Exchange (NYSE), there are a lot of rules and restrictions set up for the sole purpose of restricting unethical activities by the firms that have purchased seats. Any deviations from the rules and restrictions result in heavy penalties to the company including the loss of the seat, so an ABC agreement is very important because it gives the firm or company the right to monitor the activities of the employee that serves as the firm's representative in the NYSE.

There are three provisions that an ABC Agreement has to contain:

  • The employee can transfer the seat to another employee in the same firm: This provision makes it easy to transfer the seat to another employee in the same firm in case the previous employee is replaced for any reason.
  • The employee can retain the seat and purchase another seat for an authorized employee of the firm: This means that the firm can increase its presence in the New York Stock exchange (NYSE), however, there are some restrictions to the number of seats a company can have.
  • Sell the seat and give the proceeds to the company: If a company decides to sell its seat on the NYSE to another party, the proceeds from that seat goes to the company and not the employee that held the seat.

Owning a seat on the NYSE enables them to trade on the floor. (Read the answer to our frequently asked question Why is membership in the NYSE know as "owning a seat"? to learn more.)

This question was answered by Chizoba Morah.

RELATED FAQS

  1. What's the difference between primary and secondary capital markets?

    Learn how in the primary capital market, securities are issued for the first time, while in the secondary market, investors ...
  2. What is a common strategy traders implement when using the Haurlan Index?

    Understand the fundamental dynamics behind the Haurlan Index and read about trading strategies based on its three component ...
  3. What are the most common strategies for using the Absolute Breadth Index (ABI)?

    Read about some of the ways in which technical investors use the absolute breadth index to measure whether a market trend ...
  4. How long does it take a broker to confirm a trade after it is placed?

    Learn about placing trades with a broker and the amount of time required to received confirmation of different types of orders, ...
RELATED TERMS
  1. Discretionary Investment Management

    A form of investment management in which buy and sell decisions ...
  2. Execution Only

    A trading service that is restricted to execution of trades only, ...
  3. Business Broker

    A professional who specializes in the purchase and sale of companies. ...
  4. National Best Bid and Offer - NBBO

    A term applying to the SEC requirement that brokers must guarantee ...
  5. Dealer

    A person or firm in the business of buying and selling securities ...
  6. Market-Maker Spread

    The difference between the price at which a market maker is willing ...

You May Also Like

Related Articles
  1. Trading Strategies

    Risk Management Techniques For Shorting ...

  2. Professionals

    How to Choose a Robo-advisor? Follow ...

  3. Investing Basics

    Why Do Penny Stocks Fail?

  4. Brokers

    Do You Know How To Beat Your Broker?

  5. Fundamental Analysis

    Making Sense Of The Dow Reaching Record ...

Trading Center