Contract Notes in Stock Trading – What Investors Should Know

A contract note is a legal record of stock market transactions, summarising trade details, charges, and execution. Issued by brokers, it helps investors verify trades and understand associated costs. This page explains the purpose, structure, and interpretation of contract notes in detail.

A contract note is a document issued by a stockbroker within 24 hours of a trade, confirming buy or sell transactions on a stock exchange. Mandated by SEBI, it serves as a legal record of the trade, promoting transparency and helping resolve disputes if they arise.

Contract notes provide the critical audit trail necessary for maintaining transparency in stock transactions. For investors, this document:

• Verifies that trades were executed as per their instructions
  

• Offers a breakdown of charges including brokerage, taxes, and levies
  

• Helps during tax filing and financial audits
  

• Protects against potential disputes by providing legal proof
  

• Supports clarity in portfolio tracking
  

When matched against personal trade records, contract notes ensure that the execution of the trade aligns with market standards and investor instructions.

Each contract note contains multiple sections that break down the financial and legal particulars of the trade. Understanding these components helps investors read the note with confidence:

• Broker and Client Details: Includes the name, address, and SEBI registration number of the broker; and the name, address, and unique client code of the investor.
  

• Trade Information: Lists the order number, trade number, stock name, ISIN (International Securities Identification Number), order time, trade time, quantity, and price.
  

• Charges Breakdown:
  

  • Brokerage: Commission charged by the broker
    

  • Exchange Transaction Charges: Levied by the stock exchange
    

  • SEBI Turnover Charges: Regulatory charges collected by SEBI
    

  • Stamp Duty: As per state laws
    

  • Securities Transaction Tax (STT): Applicable on certain types of trades
    

  • GST: On brokerage and transaction charges
    

• Net Amount Payable or Receivable: Indicates the final amount after deducting all charges
  

• Annexure: A trade-level breakdown of all buy and sell transactions
  

Understanding these terms is essential to ensuring accuracy in execution and compliance.

Knowing how to interpret a contract note equips investors with the ability to cross-verify their trades effectively. Here are the steps to follow:

• Verify Your Details: Check your name, client code, and PAN details
  

• Match the Stock Details: Cross-check the ISIN, quantity, and stock name
  

• Examine the Charges: Ensure brokerage, GST, and other levies are accurately listed
  

• Understand WAP (Weighted Average Price): Helps in knowing the average price for multiple trades on the same security
  

• Calculate Net Amount: Ensure the final debit or credit amount matches your trade values
  

Refer the table below:-

Contract notes are generally delivered in two formats. While physical copies were the norm earlier, digital or electronic contract notes (ECNs) are now widely adopted. Here's a closer look at both formats:

• Electronic Contract Note (ECN): Sent via email in PDF format within 24 hours of trade execution. Password-protected for security.
  

• Physical Contract Note: Mailed or delivered in print upon specific investor request. Less common today due to operational inefficiencies.
  

ECNs are eco-friendly, faster to deliver, and easier to store or retrieve during audits and reconciliations.

SEBI and stock exchanges periodically update contract note formats to ensure clarity, uniformity, and better investor experience. Recent developments include:

• Unified Format: Across all trading segments (cash, derivatives, currency, commodities)
  

• Annexure Enhancements: Clearer trade-wise details
  

• Improved Cost Disclosure: Full transparency on every charge
  

• Password Standards: Secure delivery of electronic contract notes
  

These changes make contract notes easier to interpret and reduce confusion for investors.

While most contract notes are auto-generated, errors can still occur. Common issues include:

• Incorrect client code or PAN details
  

• Discrepancy in trade quantities or stock names
  

• Charges applied incorrectly or omitted
  

Investor Checklist:

• Always compare contract note with trade confirmation messages
  

• Raise discrepancies with the broker immediately
  

• Retain contract notes for tax and audit purposes
  

Regular scrutiny can help avoid future disputes and financial inconsistencies.

Contract notes are essential for confirming trades, tracking charges, and supporting accurate financial records.

This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.