ABC Agreement is an agreement between a firm that finances a seat on the New York Stock Exchange and the employee who purchases the seat. The agreement, approved by the exchange, permits the member to transfer the seat to another employee of the member firm, keep the seat and purchase a second membership for another individual designated by the lending firm, or sell the membership with proceeds given to the member firm. ABC Agreements are used because of an exchange restriction prohibiting organizations from becoming members.An agreement made between a purchasing member with a seat on the NYSE and the firm in which he or she works. An ABC agreement typically provides for three privileges that come with the purchase of the seats. First, the firm may choose to transfer the seat to another employee of the organization. This allows for an easy transition when the employee who normally purchases the seat is either no longer with the firm, or needs to be replaced for some reason.
A second provision within the ABC agreement allows the firm to retain control of the original seat and purchase a second membership for another employee of the firm. It is not unusual for brokerage firms to finance more than one seat, thus increasing the presence of their employees at the Exchange. However, there are limits to the number of seats that may be controlled by any one business entity.
Last, an ABC agreement allows the financing firm to sell the seat membership. There are some restrictions on this process, and the new owner would have to meet the same rigid criterion that is imposed on any organization that wishes to fund seats and have employees purchase them. The proceeds realized by the sale are directed to the firm that financed the seat, and not toward the employee who purchased the right to use the seat.
The ABC agreement is so named because of the three main provisions it allows. Similar types of arrangements exist between firms and their employees on various other exchanges.