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 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 ...
  2. 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, ...
  3. How do you know if a trade placed to a broker is confirmed?

    Learn how to check if trades placed with brokers online or over the telephone have been filled and confirmed. Explore different ...
  4. What are the differences among a real estate agent, a broker and a realtor?

    Learn how agents, realtors and brokers are often considered the same, but in reality, these real estate positions have different ...
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. Market-Maker Spread

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

    A person or firm in the business of buying and selling securities ...

You May Also Like

Related Articles
  1. Brokers

    Key Differences Between M&A Advisors ...

  2. Trading Strategies

    Not All Online Trading Brokers Are Created ...

  3. Investing Basics

    What Does The Dow Jones Industrial Average ...

  4. Steps to pick the right options brokerage account depending on your needs, style of trading, etc. It should be unbiased - This article is mainly for a trader who does not know how to pick a option brokerage account
    Options & Futures

    Pick the Right Brokerage Account for ...

  5. Investing Basics

    Charging Bull-The Brass Icon of Wall ...

Trading Center