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Definition: ABC Agreement
ABC agreement is an agreement or a contract between a brokerage firm registered on a stock or commodities exchange and employee of the firm highlighting the rights of the firm when it buys a stock or commodities exchange membership for the employee.
The ABC agreement consists of three stipulations referenced in the eponymous A-B-C for the future dispositions of the seat held in the exchange by the employee.
A – It allows the employee of the firm to transfer his or her ownership to another employee of the firm.
B – It allows the employee of the firm to buy another membership or second seat on the trading floor for another employee of the firm while still retaining the ownership of the first seat.
C – It states that the employee must transfer any gains back to the firm from the sale of the seat or must transfer the seat back to the firm for a nominal consideration should the employee die.
The ABC agreement exists because the employees represent the companies that employ them and the brokerage firm buys their membership but they are recognised as independent brokers by the NYSE. Hence this agreement protects the firm in an event of employee leaving the firm to go to another firm. These agreements are used because of a restriction prohibiting firms becoming members of NYSE. This agreement must be entered with the consent of the NYSE.