A Contract Note is simply defined as confirmation of a sale of specified assets or purchase of securities between two parties. This is the legal record of all exchange transactions as per the bill of exchange. A contract note is a confirmation of a transaction made on behalf of the customer on a particular day on a stock exchange.
Contract note provides important details of transactions such as date, time, price, transaction size, among others. It also includes a reference number that you can use to check your trading data on the exchange.
Essential parts of a contract note
A valid contract note should have the following details in a structured format:
- The exact amount you have received/paid is stated at the bottom of the contract note. This amount is deducted from you and added to the list of registrations.
- Product details such as order number, trade number, and price, time of sale, traded security, service and quantity, brokerage fees, and other service charges
- Commercial trading member or broker affiliation details issued by SEBI
- Official signature (either digital or physical)
- Arbitration laws and regulations
The contract note clearly highlights the date, duration, and amount of the trade at the exchange done by your broker on your behalf. It also presents pre-contractual information and contains a reference number that allows you to verify information on stock transactions.
Importance of contract note
With a greater number of people participating in Indian financial markets as investors and traders, the likelihood of fraud and conflict has also increased. The Securities and Exchange Board of India (SEBI) has taken a number of measures to protect the general interest of investors.
The first step in this direction is the digital contract note, which contains the details about price, intermediary, cost of the service, and the Securities Transaction Tax (STT) in the prescribed format.
By examining and possessing the contract note document, an investor can be sure that her/his order will be executed by the broker.
This document is a prerequisite for any legal action or arbitration against your agent in case of fraud or deceit. Experts suggest that you should ask your broker for the note on a regular basis to ascertain security and transparency.
The contract note you receive is a combined contract note which details the equity trades conducted on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE), and futures and trading options (F&Os) on NSE.
- The exchange order number is displayed in the Order Number column.
- Order Time displays the timestamp of the order.
- Trade No. shows the exchange’s trade number.
- The Security/Contract column lists the stock/scrip in which the order was placed.
- Buy/sell indicates the nature of the transactions.
- The gross rate per unit shows the order’s execution price
- The net rate per unit column will be the same as the gross rate per unit and brokerage costs are listed separately in the contract note.
- For deferred derivative contracts, the closing price per share – the price at which the contract closed for the day – applies.
- Net total before levies shows the total amount due to you or from you before brokerage and taxes.
- All the taxes applicable and brokerages, including SEBI turnover fee, Good and Services Tax (GST), Securities Transaction Tax (STT), stamp taxes, exchange transaction tax, etc. are listed here.
- The total amount payable or receivable is put at the table’s end.
The main purpose of contract notes is to calculate the net brokerage charges and profits on capital investments. You can also use it to calculate data for filing income tax returns. In short, contract notes are important for transaction validation and participating in financial markets securely.