How to Interpret the Contract Note? :

I am assuming that you are already an investor in the stock market and knows about the stock market a lot.

Then, when you buy any of the securities of the stock market and after the transaction gets completed then you receive a notification that confirms your order and the transaction is completed by then.

That’s all?

No, after the transaction gets completed after that you need to check your emails and apart from the notification you received you will also receive a pdf document of your “Contact Note”

Do you know what contract note is about?

Don’t worry because our article is on “How to Interpret the Contract Note?” and in this you will about the meaning of contract note and how to read this.

Contract note is an important legal documents held by the investor of the stock market and it keeps track on all the transactions at one place gathering all the data’s of profit and losses.

So, let’s get started with the basic definition of “Contract Note”

What is Contract Note?

A Contract Note is issued to the investor by the trading member of the trades done on a day.

This becomes an evidence of the trade done by the investor and keeps records of all the profit and loss of his/her trades.

Contract Notes are regulated under the guidance of Securities & Exchange Board of India (SEBI).

This is a confirmation of the trade done on a particular day and this note is provided by both the stock exchange – NSE or BSE.

If you had done the offline trading or investing from the broker then you will receive this contract note from him.

Now, let us understand the format of the contract note:

Format of Contract Note

Securities & Exchange Board of India (SEBI) is the regulatory identity that governs all the rules and regulations for the stock market.

Therefore, the format of the contract is also designed by SEBI.

Let us discuss in brief about the content available in the Contract Note:

  • Starting for the top of the Contract Note, you will find the name of the trading member that also contains the information of his address and the SEBI registration number.
  • Then, moving to the left side of the note, you will find further more information that is mentioned below:
  • Contract Note Number
  • Trade Date
  • Name of the Client
  • Address of the Client
  • PAN of the Client
  • Unique Client Code (UCC) of client – this is the ID that helps to log in the trading.

The above information is useful to know about the details of the client

  • After that on the right side, you will see the three columns stated as whether you have traded from National Stock Exchange (NSE), Bombay Stock Exchange (BSE) or from Multi Commodity Exchange (MCX). With this you will also find the Settlement No and Settlement Date.
  • And after this you will get more detail of your transaction that has been mentioned below:
  • Order No.
  • Order Time
  • Trade No.
  • Trade Time
  • Security or Contract Description
  • Buy or Sell
  • Quantity
  • Gross Rate
  • Brokerage per unit
  • Net Rate per Unit
  • Net Total

These information are used for interpretation to know about the transaction details.

Under this, you will get all the details about all the transactions done by you along with the rates and quantity purchased in the above.

  1. The details starts with the total payout/pay-in made in the following manner:
  2. Pay in/ Payout obligations
  3. Brokerage Charges
  4. Exchange Transaction Charges
  5. GST @18% on the brokerage and transaction charges
  6. Securities Transaction Tax
  7. SEBI Turnover Fee
  8. Stamp Duty

These transaction are useful to know about the charges implied in the trades.

These transactions are all regulated by the rules and laws of the stock exchange and SEBI.

Nowadays, Contact Notes are digitally signed by the trading member.

So from the above you get all the details and their interpretation of the contract note.

Now let us understand why anybody need this.

Why it is required?

As you know, that the members of the stock market is increasing on a daily basis and by this it also increases the risk of frauds and disputes.

So, SEBI has taken some major steps to protect the interest of the common investors.

Starting the contract note with the format showing about the Price, Brokerage, Service Tax and STT.

Contract Note can be act as cross reference in case of doubts with the respect of the transactions and you can verify it from the NSE/BSE website.

This list contains about the details that is listed below:

  • Calculation of Capital Gains
  • Calculation of Total Brokerage Charged
  • Calculation of data for filling the Income Tax Return
  • Legal Proof in case of dispute with the broker

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Author

Prashant Raut is a successful professional stock market trader. He is an expert in understanding and analyzing technical charts. With his 8 years of experience and expertise, he delivers webinars on stock market concepts. He also bags the ‘Golden Book of World Record’ for having the highest number of people attending his webinar on share trading.