4.1 What are Contract Notes
Contract notes are one of the most important legal papers available for stock market investors. It keeps track of all transactions at one location, as well as profit and loss information. The availability and legality of important information relating to a transaction makes it critical for an investor or trader to truly understand the market in this document.
Any trade made by a stock broker on a stock market is recorded by a contract note. It confirms a trade executed on the client's behalf on a stock exchange (BSE / NSE) on a given day. This document is sent to you by your broker and contains information about the shares you bought or sold through him. It's also possible that the document will be provided in electronic format with a digital signature.
4.2 Significance of Contract Note
As the number of people investing in the stock market grows, the odds of fraud and conflict expand as well. SEBI has taken a number of steps to protect the interests of all investors. The digital contract note, which shows the price, brokerage, service tax, and STT in the required format, is one of the first steps in that direction.
An investor can be confident that the order he placed through his broker was executed simply by looking at this document. This paper is required before you can file a lawsuit or arbitration against your broker. You should always count on your broker to provide contract notes on time.
4.3. Why is Contract Note Important?
The growing numbers of retail investors also increase the likelihood of conflict and fraud. That’s why the Securities Exchange Board of India (SEBI) took measures to protect retail investors, one of which was the contract note. A contract note contains all relevant information about trade, such as service tax, STT, price, brokerage, date of trade, etc. The contract note format is fixed and helps eliminate any confusion and discrepancies in the trading process. The document assures the investors that their brokers have completed the trade as directed. It’s an important document to take legal action against the broker in case of conflict. Thus, investors must ensure they get their contract notes as soon as they place their trade orders. The most important uses of contract notes include brokerage calculation, capital gains calculation, IT return filing, checking the legality of transactions, and filing a lawsuit in case of misconduct by a broker.
4.4 What is a Contract Note for Shares ?
Contract notes give information on all share trading and transactions. Reading the contract note will help the investor identify every minute detail of trades carried. Below are the primary sections of a contract note in the case of shares or securities trading.
1. Buy and Sell
This section includes whether the investor has placed a buy or sell order.
2. Quantity Transacted
This section includes the number of securities that were a part of the trade. A positive number indicates that a buy order was placed, and a negative number indicates the investor has placed a sell order.
3. Per Unit Gross Rate
This section contains the security price when carrying out the order
4. Per Unit Brokerage
All trades have a mandatory brokerage fee mentioned in the per unit brokerage section of the contract note for shares.
5. Total Net (Before Levies)
This section of the contract note contains the total amount generated by the trade before any fees or charge deductions.
4.5 What are the Contents of Contract Note ?
All essential information is included in a contract note. Some necessary fields are trade date, period, quantity exchanged, etc. The note also includes a reference number that investors can use to verify or authenticate transaction information with the stock exchange.
Contract notes follow a standard format and contain the following details:
- The sub-broker or trading member details, including their Securities and Exchange Board of India registration number.
- Information relevant to the trade, including the order number, price of the security, size of the transaction, time at which the trade was executed, the total amount exchanged in trade, applicable brokerage, details of service charges, etc.
- Physical or digital signature of the authorised members.
- Rules and by-laws pertinent to arbitration.
Contract Note Charges
The cost of a physical contract note sent via courier varies based on the broker. However, digital contract notes are delivered free of charge. They are available in PDFs, and the brokers typically share them through email.
Password for a Contract Note
Since the contract note contains sensitive information, the digital file is protected by a password. Different stockbrokers use different password formats. Some brokers also keep the password as the client’s PAN number.
