Contract notes are one of the most important legal documents available to stock market investor. It keeps track of all his transactions at one place together with data of profit and loss. Availability of the critical information related to a transaction in this document and legality makes it important for an investor/trader to understand it properly. In this article we will find out how contract notes are structured and the practical purpose they serve.
What is Contract Note?
Contract note is the legal record of any transaction carried out on a stock exchange through a stock broker. It serves as the confirmation of trade done on a particular day on behalf of a client on a stock exchange (BSE/NSE). You receive this document from your broker at end of day if you have bought or sold share through him. This document is also available in digitally signed electronic format.
What are the details?
Contract note describes key details of a particular transaction together with date, time, price, quantity traded etc. It also includes a Reference Number which can be used to cross-check the details of the transaction with the stock exchanges. A valid contract note should have following details in structured format
- SEBI registration number of the Trading Member/ Sub broker
- Details of trade like, Order Number, Trade Number., Trade Price, Trade execution Time, Traded Quantity, Brokerage Charged, Settlement Reference Number, Details of other Service Charges
- Signature of Authorized Signatory or Digital Signature in Electronic format
- Bylaws and regulations pertaining to Arbitration
Why it’s required?
As the number of participants is increasing in stock market, odds of fraud and disputes are also growing day by day. SEBI has taken some steps to protect the interest of common investors. One of the very first steps in this direction is the digital contract note in prescribed format showing Price, Brokerage, Service Tax and STT etc. By looking at this document an investor can be sure that the order he placed through his broker has been executed in genuine fashion. This document is a prerequisite for filing a complaint or arbitration proceedings against your broker, you should always insist on timely delivery of contract notes from your broker. Contact note can act as cross reference in case of doubt with respect to any transactions as you can verify the genuineness of the same on the BSE/NSE website. The primary usage of a contract note is listed below:
- Calculation of Capital Gains
- Calculation of total brokerage charged
- Calculation of data for filing Income Tax Return
- Legal Proof in case of dispute with broker
- Cross examining genuineness of the transactions
How to Get It?
Ask your broker to send it to you if you are not receiving it. You can get your email id registered with your broker and it will be delivered to you in electronic format. Now a day’s almost all broking houses provide digital contract notes. This service is normally free but at times your broker might charge a nominal fee.
How to read it?
Important parts of the contract note are described in the picture below. Some parts have been intentionally blurred so as to maintain the confidentiality of the client.