Common contract notes goes live today, say sources; FPIs, institutions to benefit most

Relief for FPIs and institutional investors, common contract notes to be issued from today, say sources.

After months of preparation and delays, common contract notes are finally being rolled out. According to sources, stock exchanges and clearing corporations have agreed to launch the system starting June 27. All trades executed from today will now be accompanied by a common contract note.

Originally scheduled for launch in April, the rollout was postponed due to operational challenges. However, following a recent meeting with the market regulator and after incorporating feedback from mock testing, the final green light has been given.

“All issues have been resolved, and trades executed from June 27 onwards will follow the common contract note format,” a source confirmed.

The newly launched common contract note is expected to benefit foreign portfolio investors (FPIs) and large institutional investors the most, by offering a consolidated view of trades across exchanges in a single document.

Currently, when an investor splits an order between NSE and BSE, they receive separate contract notes from each exchange, each showing its own Volume Weighted Average Price (VWAP). This often makes it harder to track the actual average execution price of a trade.

With the new format, the VWAP will be calculated across both exchanges, giving investors a clearer picture of the true average buying or selling price for a particular stock.

The VWAP across exchanges is computed by dividing the total traded value of shares by the total number of shares traded across both exchanges.

While brokers will still provide exchange-wise trade details separately as annexures, transaction charges from both exchanges will now be clubbed together in the main contract note. This move is expected to enhance transparency and streamline processes for investors.

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The contract note is an important document and proof of the execution of trades done through a broker. In case a broker defaults, investors can get compensation from the Investor Protection Fund by submitting the contract note as proof of the transaction. It will have details like the share name, quantity, trade price, time of purchase, brokerage charges, and all the applicable taxes. It’s a proof of trade execution, it is essential for record-keeping and tax purposes.

While the common contract note will be mandatory for all categories of clients of the equity segment, it will only be applicable for secondary market transactions.

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The proposal of a common contract notes with a weighted average price across exchanges was long pending due to issues related to the readiness of the market participants' system. It was to go live in August 2024, but due to a lack of preparedness extended the deadline was extended to April this year, but was further extended.