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.

In 2017, a special court under market watchdog SEBI issued five years of imprisonment to stockbroker Ashok Bhagat, for manipulating the prices of shares of two companies — Empower Industries Limited and Highland Industries Limited. This manipulation in the prices of the share is called stock rigging. In 2020-2021, SEBI picked 94 fresh cases of disregarding the securities norms, of which 43.6 percent were suspected of market manipulation and price rigging of stocks. 

What is stock rigging? 

When the price of stock is subject to a sharp rise or sudden decline, it is called stock rigging. Stock rigging occurs when several brokers, speculators and different types of firms or people from corporates also known as stock market operators work together as a syndicate to move a stock price for their benefit. The stock rigging creates a sharp price difference for a short period, which generates higher profits for themselves. 

Such price manipulation is generally targeted to the mid-cap stock as it is easier to influence them. New investors, driven by the idea of gaining quick gains, invest their hard-earned money to such stocks decided by few individuals and end up losing money. 

How does stock rigging work?

The stock market operators select a small company’s stock from a booming industry that has low market capitalisation. These individuals convince the promoter of the company to initially invest in exchange for high returns and give the stock prices an initial jump. Now, the stock market operators force the stocks to look highly profitable by placing an equal number of buy and sell orders for the stocks simultaneously. The large volume of orders placed gives the investor an impression that there is an increased interest in the stocks, which convinces them to buy the stock, eventually skyrocketing the stock price as they anticipate a price appreciation.

At this point, when the prices of stocks are high, the manipulators sell their shares to the public and plan their exit, which leads to a drop in stock price. The sudden drop in stock prices creates panic amongst retail investors. They are unable to sell as they cannot find buyers for the shares because market manipulators had already bought the maximum shares. As a result, investors face huge losses. This is how some stock market operators use price rigging as bait to gain huge profits at the expense of public money. 

When the common man has decided to invest his money in stock exchanges, he cannot buy or sell stocks directly from NSE or BSE. It requires the interference of middlemen popularly known as ‘stock brokers’, to execute the buying and selling of stocks for its investors. The origin of stockbrokers can be dated back to the 2nd century BC, during the Roman Empire. The profession faded, with the decline of the Roman Empire, and flourished again when Dutch East India Company released the first publicly traded stocks through the Amsterdam Stock Exchange.

A stockbroker is an intermediary that helps an investor facilitate the buying and selling of stocks at the stock markets on behalf of investors. They also help investors to manage their investments and money and help build a portfolio. A portfolio can be termed as ownership of a stock, bond, or any other financial asset with the hope that in the future it will return or grow in value over time. 

As digitisation makes inroads in our daily lives, stockbrokers have pivoted online to provide their investors a hassle-free trading experience. There are a few well-known online stockbroker platforms like 5Paisa, Zerodha, Upstox, Angel Broking and Groww, etc. 

Things to keep in mind while selecting an online stockbroker

A stockbroker earns income when investors buy or sell any kind of stock through its platform. Here are some of the things to be kept in mind before selecting an online stockbroker. 

• Affordable brokerage charges

It is not necessary that an online stock broker charging high brokerage will offer better services. It is suggested to select an online stockbroker who understands the needs and expectations of an investor from stock trading. An investor should select a stockbroker who provides excellent stock trading services at affordable brokerage charges. 

• Multiple trading segments

Investors should select those online stockbroking platforms that are trading in multiple financial products such as equity, commodities, IPOs, FDs, etc. 

• Offers seamless fund transfer process

Investors should select those online stock broker platforms that come with 3-in-1 Demat accounts to provide seamless fund transfer services allowing investors to trade with ease. The 3-in-1 account consists of three separate accounts open together that include a bank account, a trading account -a share broker account that allows to trade in equity, F&O, etc. segments and a Demat account which holds the equity shares purchased by the investors. If investors open a Demat account with a non-bank stockbroker, then for every trading transaction the investor will have to transfer money. 

• Expert research team 

While selecting an online stock broker, investors should check the expertise of the research team provided by the stockbroker. It is necessary since the research reports provided by the stockbroker will suggest investors invest in the best stocks to give high returns.