Contract note
The legal record of a trade a stock broker executed for a client on an exchange, issued within 24 hours in the exchange-prescribed format, physically or as a digitally signed electronic contract note.
In plain language
When your broker buys or sells for you, the contract note is the proof. It is the broker's formal confirmation of what was traded, when, at what price, and what it cost you after brokerage, taxes and levies.
It is also more than a receipt. A contract note issued in the exchange's format establishes a legally enforceable relationship between the broker and the client for settlement of the trades it lists. If a dispute ever reaches arbitration, the contract note is one of the first documents asked for.
Every trade executed for a client must be supported by one.
How it works
From Chapter 3 (Box 3.1, and section 3.4.4.1 on books of account):
Timing and form. Issued within 24 hours of execution, in the format prescribed by exchanges/SEBI, in physical or electronic form as the client chooses. Physical notes are acknowledged with date on personal delivery, or the broker keeps proof of dispatch.
Electronic contract notes (ECNs) go only to clients who opted for them (in the account opening kit or a separate letter), normally by email. They must be digitally signed, encrypted, non-tamperable and comply with the IT Act, 2000. The broker keeps the delivery log and a bounce mail log; if an ECN bounces, a physical copy must be sent. The ECN is also published on the broker's designated website, and may additionally go by SMS/instant messaging to the registered mobile number.
Contents. Contract notes are serially numbered from the start of the financial year and carry the client's name, PAN and client code; order number, order entry time, trade number, trade time, quantity and price; an annexure where a weighted average price is shown; the consideration, stated separately; statutory charges (STT, GST, stamp duty), regulatory levies (SEBI turnover fees, exchange transaction charges) and brokerage; the broker's address, phone, email, PAN, and the compliance officer's name and contact details. They are signed by the broker or an authorised signatory.
Records. Brokers maintain duplicates or counterfoils. A contract note without consideration is null and void under the Indian Contract Act.
A worked example
Illustrative. Anita buys 100 shares at Rs 1,250 at 10:42:15 a.m. on Monday through her broker, who executes in two trades.
| Field | Entry |
|---|---|
| Contract note no. | 000457 (serial from 1 April) |
| Client | Anita Deshmukh, PAN ABCPD1234E, UCC A2291 |
| Order no. / time | 1100000012345 / 10:42:15 |
| Trade nos. / times | 5543321 at 10:42:15 (60 shares); 5543322 at 10:42:16 (40 shares) |
| Quantity x price | 100 x Rs 1,250.00 |
| Consideration | Rs 1,25,000.00 |
| Brokerage | Rs 20.00 |
| STT, stamp duty, GST, SEBI fee, exchange charges | each shown on its own line |
| Net amount payable | Rs 1,25,000 + all of the above |
| Compliance officer | name, phone, email |
The charge amounts here are placeholders, not rates - the workbook requires the lines, not particular figures.
Timing: executed Monday morning, so the note is due by Tuesday morning (within 24 hours). Anita opted for ECNs, so it arrives digitally signed by email and is posted on the broker's website. If the email bounces, a physical copy follows.
Why NISM asks about it
Chapter 3 (Introduction to Securities Broking Operations) explains the contract note in Box 3.1 and lists its counterfoils among the books a broker must keep (section 3.4.4.1); its sample questions ask "A contract note is ___" (answer: confirmation of trade done during the day with details of securities, price and so on - not the pre-trade client agreement). Chapter 2 lists falsifying or predating contract notes as an unfair trade practice. Chapter 5 requires electronic contract notes for institutional STP trades, and Chapter 7's Investor Charter repeats the 24-hour timeline and lists contract notes among documents for ODR.
Common exam traps
- A contract note confirms a trade already done. It is not the account-opening agreement signed before trading - the sample question's wrong option.
- Within 24 hours of execution. Chapter 3's clearing section (3.4.3) says the broker issues the contract note "at the end of the trade day"; Box 3.1 and the Investor Charter say within 24 hours. The binding timeline to quote is 24 hours.
- ECNs only to clients who opted in, and a bounced ECN means a physical copy.
- No consideration, no contract - null and void under the Indian Contract Act.
- Serial numbering restarts each financial year.
- Predating or falsifying contract notes is a fraudulent and unfair trade practice.
Where this is taught
Free preparation for NISM Series IVRelated terms
- Investor CharterSEBI's published statement of what an investor is entitled to from an intermediary — the services, the rights, the dos and don'ts, and a table of activities with the timeline each one must be completed in.
- Mis-sellingSelling securities or securities services by knowingly making a false statement, hiding material facts or risk, or not taking reasonable care that the product suits the buyer — an unfair trade practice.
- ArbitrationQuasi-judicial dispute resolution under the Arbitration and Conciliation Act, 1996, run online by an ODR Institution once conciliation fails; the award binds unless challenged under Section 34.
- Straight Through ProcessingElectronic processing of a trade in one pass from deal to final settlement through a single system, without manual re-entry; mandatory for institutional trades since 2004.
- Unique Client CodeThe single code a broker assigns to a client once KYC is complete, mapped to that client's PAN and demat account, under which every one of the client's orders must be entered on the exchange.
- Electronic Contract NoteA contract note issued electronically instead of on paper — permitted only after the client's consent, given either through the client agreement or as a separate, standalone consent.
- Stock exchangeA body of individuals, or a body incorporated under the Companies Act, that assists, regulates or controls the business of buying, selling or dealing in securities.
- Trading accountThe account you open with a SEBI-registered stock broker to buy and sell securities on a stock exchange. You get a Unique Client Code, a contract note within 24 hours of each trade, and alerts.
- T+2 rolling settlementThe settlement cycle the booklets teach: trades on day T are settled two working days later, so a Monday trade settles on Wednesday. India has since moved to T+1.
- Positive confirmationSEBI's way of checking a declared address without any document — the intermediary gets a response from the address, by a welcome-kit or statement acknowledgment, a telephone call, or a visit.
- Trade annulmentA trading member's request, made within 30 minutes of trade execution, to cancel a trade already matched on the exchange — accepted only if it meets set conditions, and charged an annulment fee.
- Running accountA client's written, revocable authorisation letting the broker keep the client's funds instead of paying them out within one working day of pay-out, subject to settlement at least every 30 or 90 days.
- Dabba tradingIllegal off-exchange "trading" by unregistered operators who record deals against exchange prices in private books and settle only price differences in cash, with no delivery, guarantee or investor protection.
- Sauda bookThe broker's statutory register of every transaction effected, showing the security, its gross and net-of-brokerage value and the client's name, required to be preserved for eight years.
- TradeThe binding transaction created the moment a buy order and a sell order are matched on the exchange, after which it can be modified only in narrow, regulated ways and never simply cancelled.
- Trade allocationThe back-office process of splitting a single institutional order — entered with the CP code "INST" — across the client's various sub-schemes or portfolios, based on deal sheets from the front office.
- Trade enrichmentThe automatic back-office step of adding brokerage, GST, stamp duty and Securities Transaction Tax details to a trade immediately after execution, ahead of settlement and billing.