Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

ABC Agreement

What it is:

An ABC agreement is a contractual agreement between an investment house and its broker which allows the firm to purchase a seat (membership) on the New York Stock Exchange (NYSE).

How it works (Example):

So called for its three standard conditions, an ABC agreement is entered into by a stock broker and his employing investment house. Each condition represents a possible option for the broker depending on whether or not he plans to remain employed by the respective investment house.

Should the broker choose to leave the employ of his respective investment house he may:

A) Have his seat reassigned to another employee within the firm.
B) Sell his seat to another broker provided that proceeds from the sale are returned to the investment house.
C) Continue to own his seat provided that the broker is willing to purchase a new seat for another broker chosen by the investment house.

Why it Matters:

It is a significant benefit for a broker employed by an investment house to have his NYSE seat purchased for him. To this end, an ABC agreement is a protective measure for the employing investment house which ensures that, should a broker decide to leave, he will not adversely affect his former employer's reputation on the exchange.