ABC Agreement – definition and meaning
An ABC Agreement is a contract between an investment house (brokerage firm) and an employee (investment house’s broker).
The contract contains the rights of the brokerage firm regarding the employee’s New York Stock Exchange (NYSE) Membership. The agreement describes the rights of the investment house in an A, B, and C outline.
Employee stockbrokers and their employer enter into an ABC agreement. The agreement is also known as the three standard conditions. Each condition represents an option for the employees. The options depend on whether the employees plan to stay with their employer or leave.
Employees who choose to leave their employer, may:
- Give up their NYSE Membership (membership). They can give it to another stockbroker who works in the investment house.
- Sell their membership to another broker, as long as they give the money from the sale to the investment house.
- Hold onto their membership as long as they are willing to buy a new one for another employee. The investment house should choose the new member.
We call it an ABC agreement because there are three options to choose from when an employee leaves. Firms that work in other stock markets across the world have similar agreements.
Reason for the ABC agreement
An investment house buying an employee’s NYSE membership is a major perk.
ABC agreements exist because NYSE members represent their employers. The employers purchase seats for broker employees. However, the NYSE recognizes them as an independent.
The ABC agreement protects the employer in case the employee leaves to work elsewhere. The stock market is full of rival firms. For the agreement to be valid, it must have the consent of the NYSE.
Regarding the ABC agreement, InvestingAnswers.com makes the following comment:
“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.”
NYSE membership prices
NYSE memberships range in price considerably. When the GDP is growing rapidly, prices are high but decline considerably during recessions. GDP stands for Gross Domestic Product. NYSE memberships are also known as seats.
In 1929, an investment house bought a seat for $635,000, which is worth $6 million today. Since the turn of the century, prices have ranged from $1 million to $4 million.
Today, the NYSE sells one-year licenses – license holders can trade directly on the exchange. A one-year license costs $40,000. One-year licenses just for bond trading sell for as little as $1,000.
Acceptable Behaviour Contracts (UK)
Acceptable Behaviour Contracts are legally non-binding, formal agreements used with children and adults. Acceptable Behaviour Contracts are only common in the United Kingdom.
Often referred to as an ABC agreement, the Acceptable Behaviour Contract is a formal written agreement. Typically, one individual and a guardian or the parents sign the contract.
The arrangement may also apply to a contract between a person and a registered landlord, school, housing department, or local police.