What is an 'ABC Agreement'

An ABC agreement is an agreement that is made between a member of the New York Stock Exchange (NYSE) and the firm the member works for.


An ABC agreement must be approved by the NYSE before it can be executed. The agreement is used when an employee is leaving a firm and will no longer be using the company’s designated seat on the NYSE. It allows the employee to transfer their seat on the exchange to another member of their firm. The agreement also gives them the right to retain ownership of their seat, and instead use their membership to purchase a new seat for another active member of the firm. Thirdly, they can elect to sell their seat all together with the caveat that all proceeds must be transferred back to the firm.

ABC agreements are important contracts since the firm is the one that pays for the employee’s seat on the NYSE, and therefore the seat is directly tied to the brokerage. The employee using this seat could potentially do damage to the firm’s ability to trade on the exchange long after the employee has ended their employment with their existing member company.  

Other exchanges have similar agreements in place with membership firms to prevent future employee misconduct from negatively impacting a firm’s ability to conduct business on an exchange.

An Example of an ABC Agreement

As an example of an ABC Agreement in action, imagine the brokerage firm Jones Investing Group, LLC. They have a staff of 20 brokers, each one with a license to trade on the New York Stock Exchange (NYSE). One of their brokers, Ken West, has decided to leave Jones Investing for a more prestigious firm in the city. Ken has let his manager at Jones Investing know that he plans on leaving in two weeks and they have begun searching for his replacement. Once they find one, they will set up an ABC Agreement between Ken and his replacement, Lydia. The agreement will need to be approved by the NYSE, but once it has been, Lydia will officially be licensed to operate under Ken’s previous license. As this license was originally obtained by Jones Investing, Ken will have to get a separate license under his new employer.

Now imagine a situation where Ken left the investment firm under less than desirable terms. Instead of transferring his license over, as he had agreed to do when he was hired, he takes it to his new job at Smith House Investing Group. There, he makes a trade that is in violation of the NYSE guidelines, and the Securities and Exchange Commission (SEC) opens an investigation. Ken is still operating under the Jones Investing licensing umbrella, and his actions have brought them into the investigation and jeopardized the entire firm’s good standing with the NYSE.

  1. Seat

    A seat refers to a membership of a stock exchange, which enables ...
  2. Non-Member Trader

    A non-member trader is someone who does not have trading privileges ...
  3. Allied Member

    An allied member is a person who is not a member of the New York ...
  4. LLC Operating Agreement

    An LLC Operating Agreement is a document that customizes the ...
  5. Trading Partner Agreement

    A trading partner agreement is an agreement drawn up by two parties ...
  6. Option Agreement

    An option agreement is a legal contract between two parties outlining ...
Related Articles
  1. Personal Finance

    Get a More Comfortable Seat in Coach for Less

    Try these four strategies to get a better seat in economy class the next time you fly.
  2. Insights

    How The NYSE Makes Money

    We examine how the New York Stock Exchange, the leading US stock exchange, makes money.
  3. Investing

    Disney to Slash Workforce at Struggling TV Units

    Expected 10% cuts at ABC TV are intended to help Disney compete against Netflix and Amazon.
  4. Investing

    Why Companies Change Exchanges

    Companies don't elect to leave an exchange so much as they're asked. Find out why.
  5. Financial Advisor

    Should you add a securities license to your qualifications?

    Clients love planners who sell securities, but a securities license takes a lot of work. Learn if the stress and study are worth it.
  6. Insights

    The Birth of Stock Exchanges

    Learn about the evolution of stock exchanges, from the Venetian states to the British coffeehouses, and finally to the NYSE.
  7. Investing

    Stock Exchanges Around The World

    We tell you about five of the most popular stock exchanges from around the globe.
  8. Financial Advisor

    Life Insurance Plans to Help Your Small Business Retain Employees

    How to use and design cash value life insurance plans as an incentive to help attract and retain key employees.
  9. Financial Advisor

    What Advisors Need to Know About Rule 3210

    Here's what advisors and brokers need to know about FINRA Rule 3210.
  10. Investing

    Why Do Companies Choose NASDAQ for Their IPO?

    The NYSE is known for its prestige so why do some companies opt to list on the NASDAQ instead?
  1. What does a New York Stock Exchange membership entail, and why is it known as 'owning ...

    Owning a seat on the NYSE enables a person to trade on the floor of the exchange, either as an agent for someone else or ... Read Answer >>
  2. What are direct costs of sales?

    Learn about direct costs of sales and cost of goods sold (COGs), what direct costs of sales measures and how to calculate ... Read Answer >>
  3. How do I invest in the Nasdaq or the NYSE? Is it even possible? Would I want to? ...

    The Nasdaq and the NYSE are stock exchanges that trade securities. Nasdaq stands for National Association of Securities Dealers ... Read Answer >>
  4. What are the advantages and disadvantages of listing on the Nasdaq versus other stock ...

    Discover some of the primary advantages and disadvantages that exist for companies listed on the Nasdaq exchange rather than ... Read Answer >>
  5. How can a company buy back shares to fend off a hostile takeover?

    Learn about why a business might use a stock buyback to thwart a hostile takeover attempt by reducing its total assets and ... Read Answer >>
Trading Center