Chapter 17: Contract Note

A Contract Note is a mandatory legal document issued by a SEBI-registered stock broker to a client confirming the execution of trades on recognized stock exchanges. It constitutes the primary legal proof of the contractual relationship and trade terms between the investor and the broker.

Regulatory Mandates Governing Contract Notes

1. Mandatory Issuance within 24 Hours: Under SEBI regulations, a broker must issue the contract note to the client within 24 hours of trade execution.
2. Legal Evidence in Disputes: In any formal arbitration, legal dispute, or regulatory proceeding before an Investor Grievance Redressal Committee (IGRC), the contract note serves as the admissible, primary documentary evidence of trade price, execution timestamp, and authorized fee deductions.
3. Unique Format: Contract notes must adhere to the standardized format prescribed by the exchanges and SEBI, containing unique running serial numbers and encrypted audit trails.

A valid contract note provides a complete, itemized breakdown of the gross transaction value and all statutory and regulatory levies:

1. Core Identification Information

• Name, address, SEBI registration number, and exchange member code of the stock broker.
• Client Name, unique Client Code (UCC), and PAN.
• Order Number, Order Timestamp, Trade Number, Trade Timestamp.
• Scrip Name, International Securities Identification Number (ISIN), Buy/Sell flag, and executed Quantity.

2. Price and Brokerage Breakdown

• Gross Trade Price: The exact price at which the trade matched on the exchange matching engine.
• Brokerage: The fee charged by the broker for executing the order, strictly capped within statutory limits.
• Net Price: Gross trade price adjusted for brokerage (added to buy orders; deducted from sell orders).

3. Statutory Levies Itemized Separately

The contract note must clearly distinguish between broker revenue and government/regulatory taxes:

• Securities Transaction Tax (STT): Direct tax levied by the Central Government on equity and derivative transactions.
• Exchange Transaction Charges: Fees paid to NSE/BSE for platform usage.
• SEBI Turnover Charges: Regulatory fee remitted to SEBI (e.g., Rs. 10 per crore).
• Stamp Duty: Central stamp duty levied under the Indian Stamp Act, remitted to state governments.
• Goods and Services Tax (GST): 18% GST levied strictly on the service components (Brokerage + Exchange Charges + SEBI fee), never on the capital value of shares or STT.

Brokers are authorized to issue Electronic Contract Notes (ECNs) via email in place of physical paper notes, subject to strict procedural safeguards:

• Client Consent: The client must provide written or digital consent opting for electronic delivery and specify a valid email address.
• Digital Signatures: Every ECN must be digitally signed by an authorized signatory using a valid Digital Signature Certificate (DSC) issued by a licensed Certifying Authority under the Information Technology Act, 2000.
• Unsecured or Editable Formats Prohibited: ECNs must be delivered in secure, tamper-proof PDF formats.
• Delivery Confirmation and Bounce Tracking: If an ECN email bounces, the broker's system must log the failure, and the broker is obligated to re-send the contract note or dispatch a physical copy to the client's registered address.