The term ABC Agreement refers to a contract between a firm that purchases a seat on the New York Stock Exchange and the employee that uses the seat. An ABC Agreement ensures the firm can continue to trade on the exchange even if the employee leaves the company.
Exchange rules state members must be individuals; a company, or firm, cannot become a member of an exchange. With the approval of the New York Stock Exchange (NYSE), an organization can finance the purchase of a seat for their employee. An ABC Agreement protects this investment as well as the ability of the organization to trade on the NYSE.
The ABC Agreement gets its name from the three stipulations contained in the contract:
- A) The member is permitted to transfer ownership of the seat to another member of the organization.
- B) The member is permitted to purchase a second seat for another employee of the organization and still retain ownership of their seat.
- C) If the member sells the seat, all proceeds from the sale must be given to the organization that financed the seat's purchase.
These three stipulations protect the organization's investment in the exchange seat as well as their long-term ability to trade on the exchange if an employee-member were to leave the company. While the ABC Agreement is unique to the NYSE, similar contracts exist between employees and their firms on other security exchanges.