Contract note

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Contract note is a document which is sent from one contractor to another, containing details of the trade or transaction. Usually it includes transaction tax (if applicable), money value of the transaction, price, the full title of the security, money value of the transaction, delivery or settlement instructions, commission, etc. "Also known as a confirmation or a bought note, if related to a purchase, a sold note if a sale (cf. comparison ticket)"[1].

A contract note is a confirmation of transactions made on a specific day for and on behalf of the client in a format specified by the exchange. It sets a legally binding relationship between the client and the member in relation to the settlement of the exchange transactions, as provided for in the contract. Contracts notes are drawn up in duplicate, the customer and the member shall keep one copy. "The client is expected to sing on the duplicate copy of the contract note for having received the original"[2].

Contract Note preparation

After reaching an agreement between the parties concerned in relation to the price, a contract note is drawn up between the broker and the client. Detail data such as umber of scrips, the price, names of parties, date of transaction, brokerage, etc. are included in the note[3].

SEBI member/Sub-broker registration number

The investor should assert that the signed agreement/confirmation contains such details as the SEBI member/Sub-broker registration number. In addition, trade details such as trade time, quantity, price, brokerage, settlement number, order number, trade number and detail of other levies must be mentioned. The commercial price should be shown separately for the brokerage house[4].

Role of the broker

The broker emits a contract note to the buyer in terms of all the orders that are executed during the day. This note specifies the obligations of the parties concerned to ensure that the buyer has made the payment and the intermediary supplies the scripts. Adequately, payment is made and scrips are picked up by the buyer, which means the conclusion of the contract[5].

Consignment of payment of money to the broker should be asserted at once upon getting the contract note for sale or purchase, but in any case, before the prescribed pay during the day[6].

Steps in stock trading

Steps in stock trading[7]:

  1. Client registration
  2. Agreement
  3. Order placing
  4. Order confirmation
  5. Trade confirmation
  6. Contract note
  7. Delivery & clearing
  8. Share transfer
  9. Settlement

Delivery and clearing

After the contract notice is made, the delivery of the shares is carried out through an instrument called the "transfer deed". The transfer document is signed by the transferor (seller) and is legalised by a witness. Contains data on the transferor, in addition bearing the stamp of the selling broker. There are different types of delivery. For example, in the case of "spot delivery", the transaction is settled by delivery, and payment is made on the date the contract was concluded or the following day. In the case of "hand delivery", delivery and payment are made within 14 days from the date of conclusion of the contract. Delivery and payment are effected within 14 days from the date of the contract. Delivery and payment can be completed after 14 days, as specified during the contract in the case of special special or specified delivery. Delivery and removal of the security is done through the clearance house[8].

Examples of Contract note

  • A contract note is sent when a customer buys or sells a security, such as stocks, bonds, or other investments. The note outlines the conditions of the trade and provides information such as the purchase or sale price, the date of the transaction, the name of the security, the delivery or settlement instructions, and any commissions charged.
  • A contract note is also sent when an investor enters into a futures contract to either buy or sell a commodity or security at a future date. The note outlines the terms of the contract, including the contract size, the price, and the expiration date.
  • A contract note is also sent when a company enters into a lease agreement. The note outlines the conditions of the lease, including the type of property being leased, the amount of rent that is due, and the length of the lease.

Advantages of Contract note

A Contract Note is a valuable document that can provide many advantages to both parties involved in the transaction. Here are some of the benefits of having a Contract Note:

  • It serves as a legal proof that an agreement exists between the two parties. It also outlines the terms of the agreement and the obligations of both parties, which can act as a binding document to resolve any disputes that may arise.
  • It provides a clear record of the details of the transaction, such as the date, the parties involved, the value of the transaction and the terms of the agreement. This can be useful in the event of any disputes or misunderstandings that may arise in the future.
  • It provides a clear reference point for both parties to refer to if any changes need to be made to the agreement.
  • It can help to protect the rights of both parties, as the terms of the agreement are clearly documented.
  • It can help to ensure that the transaction is carried out in a timely manner, as all parties involved will understand their respective roles and responsibilities.
  • It can also act as a deterrent to any attempts to breach the agreement, as any violations of the agreement can be easily identified.

Limitations of Contract note

  • A contract note does not create any legal rights or obligations; it is merely a record of a trade or transaction.
  • It does not provide any assurance that the transaction will be properly executed or that the terms of the transaction will be fulfilled.
  • It does not guarantee the accuracy of the information that it contains.
  • It does not provide any protection against market risk or other losses arising from the transaction.
  • It is not a substitute for a legally binding contract, which must be entered into separately.
  • It does not provide any assurance that the parties to the transaction will be able to perform their obligations.
  • It does not provide any legal advice and should not be relied upon as such.

Other approaches related to Contract note

A Contract Note is a document which records the terms of a trade or transaction. Here are some other approaches related to Contract Note:

  • Investment Advice: A Contract Note can also serve as a record of the advice given by a financial advisor to a client. The Contract Note will often include advice on the types of investments that best suit a client's needs, and the risks associated with those investments.
  • Settlement Instructions: A Contract Note will often include instructions for settling a trade or transaction, such as which bank to use and what fees need to be paid.
  • Tax: A Contract Note will include information about the taxes associated with the transaction, such as capital gains tax or stamp duty.

In summary, a Contract Note is a document which outlines the terms of a trade or transaction, including investment advice, settlement instructions, and tax information.


Contract noterecommended articles
Executed agreementDelivery NoticePurchase agreementRetenderAllotment letterAuthorization to sellLetter of instructionBill of ladingShare certificate

References

Footnotes

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Author: Maciej Michałek