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When it comes to ensuring that seats on the New York Stock Exchange are used properly, the preparation and approval of an ABC agreement is vital. Designed to be an agreement between the brokerage firm that provides the financing for the NYSE seat and the employee of the company who purchases right to use the seat, the ABC agreement must be meet the qualifications established by the NYSE. Here are some examples of the provisions that are commonly found in ABC agreements.
One of the factors that must be understood is that the Stock Exchange imposes a number of rules or restrictions on brokerage firms and other financial organizations that are allowed to hold a seat in the NYSE. Essentially, the restrictions are in place to ensure there is not an opportunity for any stock brokers who are less than ethical to represent the firms that have provided the financing of seats at the Exchange. The restrictions are aimed at company level and not individual level. This motivates the firms that finance the seats to monitor the activities of their employees who purchase the seats. Failure to do so can mean the loss of the seat altogether, as well as other penalties.
An ABC agreement typically provides for three privileges that come with the purchase of the seats. First, the firm may choose to transfer the seat to another employee of the organization. This allows for an easy transition when the employee who normally purchases the seat is either no longer with the firm, or needs to be replaced for some reason.
A second provision within the ABC agreement allows the firm to retain control of the original seat and purchase a second membership for another employee of the firm. It is not unusual for brokerage firms to finance more than one seat, thus increasing the presence of their employees at the Exchange. However, there are limits to the number of seats that may be controlled by any one business entity.
Last, an ABC agreement allows the financing firm to sell the seat membership. There are some restrictions on this process, and the new owner would have to meet the same rigid criterion that is imposed on any organization that wishes to fund seats and have employees purchase them. The proceeds realized by the sale are directed to the firm that financed the seat, and not toward the employee who purchased the right to use the seat.
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