Electronic Contract Note
Also written ECN
A 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.
In plain language
A contract note is the trading member's formal record of every transaction, sent to the client without delay. It can be delivered on paper, or electronically — but not electronically by default.
A broker can only switch a client over to an Electronic Contract Note (ECN) once that client has actually agreed to receive it that way.
How it works
The trading member must issue a Contract Note without delay to its client for all transactions, in the form specified by the stock exchange. The note "can be issued electronically by way of Electronic Contract Note (ECN) to the client only upon consent of the client — either through the client agreement or by way of separate consent."
This sits alongside two other consent-linked requirements in the same part of the code of conduct: the client-level collateral segregation reporting introduced in July 2021, and the general duty to execute orders faithfully and inform clients promptly of execution or non-execution.
A worked example
A new client signs a client agreement with a brokerage that includes a clause consenting to receive contract notes electronically. From that point, the broker can validly send every contract note for that client's trades — including a lot of gold futures bought for Rs 50,00,000 (illustrative) — as an ECN, a PDF or similar electronic record, rather than posting a physical paper note after each transaction.
A different client, who never agreed to electronic delivery either in the client agreement or through a separate consent, cannot be switched to ECN delivery unilaterally by the broker. If that broker sends only an ECN for this client's Rs 30,00,000 guar seed futures trade (illustrative), relying solely on ECNs without the required consent, it breaches this specific requirement — regardless of how promptly the electronic note was actually sent.
Why NISM asks about it
Chapter 10, section 10.1, under "Duty to the Investor," item 3, sets out the ECN consent requirement immediately after the collateral segregation norm. Expect a question testing that ECN requires client consent, and that this consent can come either from the client agreement itself or from a separate, standalone consent.
Common exam traps
- Consent is mandatory before ECN can be used — it is never the default delivery mode. A broker cannot assume consent from silence.
- Consent can be given in either of two ways — through the client agreement, or as a standalone separate consent — candidates sometimes assume only one route is valid.
- The requirement is about the delivery method of the contract note, not its content or timing — the note must still be issued without delay for every transaction, regardless of whether it is paper or electronic.
Check yourself
1.Which of the following is correct about the Electronic Contract Note (ECN)?
- a)With increased digitisation, it is compulsory for brokers to issue ECN to clients
- b)Brokers should avoid issuing ECN in view of phishing and cyber security risks
- c)Brokers can issue ECN to FPIs but not to retail clients resident in India
- d)Brokers can issue ECN only after obtaining the client's consent, either in the client agreement or separately
Show the answer
Answer: (d) Brokers can issue ECN only after obtaining the client's consent, either in the client agreement or separately
(This is a sample question from the NISM workbook.)
There are two distinct rules packed into that sentence, and separating them answers the question:
- The contract note itself is mandatory for all transactions — never optional
- The electronic form requires the client's consent, which may be embedded in the client agreement or taken separately, but must exist
Why each distractor fails:
- (a) ECN is permitted, never compulsory — a client who wants paper is entitled to it
- (b) ECN is expressly allowed; the workbook raises no cyber security objection to it
- (c) The rule turns on consent, not on the client's category or residence — an FPI without consent gets no ECN, and a retail resident with consent does
The consent requirement reflects the same principle as advertising needing exchange permission and advice requiring position disclosure: convenience for the broker never overrides the client's entitlement to choose.
Where this is taught
Free preparation for NISM Series XVIRelated terms
- Collateral segregationSEBI's July 2021 norm requiring brokers to report client-wise collateral by category, so one client's securities cannot be misused for another client's exposure, margin or settlement.
- Due skill, care and diligenceA general standard in SEBI's broker code of conduct that covers gaps the specific rules miss, from delayed responses to unsuitable advice pushed on vulnerable clients.
- Code of conductThe conduct obligations a broker accepts as a condition of registration — integrity, due skill and care, no manipulation, and a specific list of duties owed to the client and to other brokers.
- Contract noteThe 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.