ABC Agreement – Definition

Cite this article as:"ABC Agreement – Definition," in The Business Professor, updated June 8, 2019, last accessed June 2, 2020, https://thebusinessprofessor.com/lesson/abc-agreement-definition/.

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ABC Agreement Definition

An ABC Agreement refers to a contract holding between an investment house and an employee. An investment house is also known as a brokerage firm while an employee is known as the broker of an investment house. The contract contains the brokerage firm’s rights in relation to the New York Stock Exchange (NYSE) membership of the employee. This agreement describes the investment house’s rights in an outline A, B, and C.

A Little More on What is an ABC Agreement

When it comes to making sure that the seats on the NYSE are utilized correctly, developing and approving an ABC agreement are important. Structured to be an agreement holding between both the brokerage company which provides financing for the New York Stock Exchange seat and the company employee who gains the right to utilize the position, it is mandatory that the ABC agreement meets the requirements created by the NYSE. The aforementioned are some instances of the provisions usually found in ABC agreements.

A factor which must be understood is that a series of restrictions or rules are imposed by the Stock Exchange on the brokerage firms, as well as, other financial bodies that are permitted to occupy a seat on the New York Stock Exchange. Thus, the rules are in place to make sure that it isn’t an opportunity for brokers with fewer ethics to represent companies which have provided funding for the stock market. The rules or restrictions are directed at both the non-individual level and the company level. This brings about motivation in the companies which finance the seats to oversee their employees’ activities who purchase the seats. Failure to do this may result in the loss of the position generally and other sanctions.

Typically, an ABC agreement provides for 3 privileges which come with buying seats. The first is that the company can decide to move the headquarters to another of the organization’s employee. This makes the transition process easy when the employee who usually purchases the seat has to be replaced for a specific reason or isn’t with the company anymore.

The second provision within an ABC agreement permits the company to have control of the original seat and also buy a second membership for an additional employee of the firm. It isn’t strange for brokerages to fund more than one seat, thereby increasing their employees’ presence in the Exchange. But, limitations exist as to the number of seats which any entity can control in business.

Finally, the ABC agreement allows for the sale of the seated membership by the financing company. There are certain limitations in this process, and it’s pertinent that the new owner meets the same rigid criteria which are imposed on any organization wishing to fund seats and also have employees purchase them. The income gotten from the sale is sent to the company responsible for the seat funding, and not the employee responsible for purchasing the right to utilize the seat.

References for ABC Agreement

Academic Research for ABC Agreement

SECURITIES EXCHANGE ACT OF 1934 Release No. 20052A/September 8, 1983 SR-NYSE-83-18, CHANGE, O. P. R. SEC DOCKET, 28(14).

Anti-Dilution Provisions of a Preferred Stock Shareholder Rights Agreement, Head, P. F. (2004). Transactions: Tenn. J. Bus. L., 6, 205.

Deflation and Reflation: The Pre-WW I Impact on NYSE Trading Volumes and Seat Prices, Wilson, B. K., & McSherry, B. (2015).

Merger of Brokerage Houses—An Overview, Hurley, W. (1975). The Business Lawyer, 469-499.

Contract as automaton: the computational representation of financial agreements, Flood, M. D., & Goodenough, O. R. (2015).

New York Stock Exchange systems and trading procedures, Hasbrouck, J., Sofianos, G., & Sosebee, D. (1993). Director, 212(998), 0310.

National Market System–A Modest Proposal, Cohen, M. H. (1977). National Market System–A Modest Proposal. Geo. Wash. L. Rev., 46, 743.

SECURITIES ACT OF 1933, CHANGE, P. R. SEC DOCKET, 63(11).

The Symbiosis of High Frequency Traders and Stock Exchanges: A Macro Perspective, Abedine, A. (2017). NYUJL & Bus., 14, 595.

The New Capital Rule, Jamroz, M. P. (1991). The New Capital Rule. Bus. Law., 47, 863.

Simulating a central securities market, Bruzzone, L. C., & Dutton, J. M. (1979, December). In Proceedings of the 11th conference on Winter simulation-Volume 1 (pp. 99-105). IEEE Press.

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