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.

  1. What is the interest rate offered on a typical margin account?

    Interest rates on margin accounts vary according to the size of the loan and the brokerage firm being used. Generally, interest ... Read Full Answer >>
  2. What are the advantages and disadvantages of listing on the Nasdaq versus other stock ...

    The primary advantages for a company of listing on the Nasdaq exchange are lower listing fees and lower minimum requirements ... Read Full Answer >>
  3. What is the cost of a share purchase?

    When investors purchase shares of stock, the price paid includes two components: the price of the stock and the fee charged ... Read Full Answer >>
  4. What is the difference between fee-based advisors and commission-based advisors?

    The difference between a fee-based adviser and a commission-based adviser is that the former collects a flat fee for investment ... Read Full Answer >>
  5. What is the difference between a custodian bank and a mutual fund custodian?

    Custodian banks and mutual fund custodians, commonly known as mutual fund corporations, perform very similar roles for different ... Read Full Answer >>
  6. How does an insurance broker make money?

    An insurance broker makes money off commissions from selling insurance to individuals or businesses. Most commissions are ... Read Full Answer >>
Related Articles
  1. Brokers

    How to Find Wealthier Financial Advisory Clients

    Most financial advisors are eager to add more and wealthier clients to their practice. Here's what it takes.
  2. Professionals

    Career Advice: Stockbroker Vs. Financial Advisor

    Read a detailed comparison between life as a stockbroker versus a financial advisor; find out how the two are different and which one is best for you.
  3. Investing

    Hetty Green: Invest Like the Richest Woman in the World

    Investors would be wise to emulate the approach to the markets that Hetty Green used to grow her fortune.
  4. Investing Basics

    Why Use a Discount Broker?

    A discount broker is a stockbroker that does not offer clients investment advice, but trades shares for a smaller commission than a full-service broker.
  5. Investing Basics

    What Is A Trading Account?

    A trading account enables an investor to buy and sell securities.
  6. Professionals

    Why Realtors Have Fiduciary Responsibilities

    Find out why real estate agents are considered to have a legal fiduciary responsibility to uphold the best interests of their clients.
  7. Investing Basics

    Understanding Brokerage Fees

    Agents charge brokerage fees for facilitating transactions between buyers and sellers.
  8. Brokers

    Broker-Dealer Industry 101: The Landscape

    Independent broker-dealers are a great choice for experienced, self-starter planners who have established practices.
  9. Investing Basics

    Learn About the New York Stock Exchange

    The New York Stock Exchange (NYSE) is nicknamed the “Big Board,” and for good reason. It’s the largest, oldest and best-known stock exchange in the world.
  10. Brokers

    Explaining Market Orders

    A market order is the most common order used to purchase a financial security.
  1. Clowngrade

    An upgrade or downgrade of a security for reasons considered ...
  2. Valium Picnic

    A market holiday or a slow trading day.
  3. Piker

    A broker or investor who makes small size trades.
  4. Blocked Period

    A period of time in which an investor’s securities are prevented ...
  5. Borrowing Power Of Securities

    The value associated with being able to invest in securities ...
  6. At The Lowest Possible Price

    A type of security trading designation that instructs a brokerage ...

You May Also Like

Hot Definitions
  1. Term Deposit

    A deposit held at a financial institution that has a fixed term, and guarantees return of principal.
  2. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  3. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  4. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  5. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  6. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!