Reviewed by Sep 28, 2020| Updated on
Contract notes are among the most relevant legal documents available to investors on the stock market. It keeps track of all the transactions at one place along with profit and loss info. In this document, the availability and legality of critical information related to a transaction make it essential for an investor/trader to properly understand the market.
The contract note is the legal record of any trade made by a stockbroker on a stock exchange. It confirms the trade conducted on a specific day, on the client's behalf, performed on a stock exchange (BSE / NSE). You receive this document from your broker stating the details of shares that were bought or sold through him. The document may also be available in electronic format with a digital signature.
Contract note outlines primary contract information along with the date, period, size; quantity exchanged, etc. This also provides a reference number that can be used to cross-check transaction information with the stock exchanges.
A good contract note should have the following details in a standardized format.
SEBI registration number of the trading member/sub-broker
Trade information, such as order number, transaction size, transaction price, trade time, traded amount, brokerage paid, settlement reference number, and other service charges' information.
Authorized member's signature or digital signature for the electronic format
Arbitration by-laws and rules
As the number of investors in the stock market is rising, chances of fraud and conflicts are also growing day after day. SEBI has taken several measures to safeguard common investor interests. One of the very first moves in that direction is the digital contract note showing the price, brokerage, service tax, and STT in the prescribed format.
Just by looking at this document, an investor can be confident that the order he put through his broker was executed. This paper is a condition for filing a lawsuit or arbitration action against your broker. You should always rely on your broker's prompt delivery of contract notes.
The fundamental usage of a contract note is:
Calculation of total brokerage charged
Calculation of capital gains
Legal Proof in the case of dispute with the broker
Calculation of data for filing the income tax return
Cross-examining genuineness of the transactions