Sebi mulls common contract note

Trading members currently requre to issue different contract notes for different exchanges, even different segments within same exchange

The Securities and Exchange board of India (Sebi) is considering introducing a common contract note for stock market investors, following representations from brokerages.

Currently, trading members have to issue different contract notes for different exchanges, as well as for different segments within the same exchange. A source familiar with the matter said the regulator had asked exchanges and trade bodies for feedback on introducing a consolidated statement. “They have asked all the entities involved to come to a consensus on the issue,” the source said.

A contract note is a record of transactions executed by a broker. It includes details such as the order number, the time of a trade, the quantity and kind of security bought or sold and the brokerage and taxation rates.

Last month, the Association of National Exchanges Members of India met Sebi Chairman U K Sinha to discuss the matter. Earlier this month, the association submitted a letter on the current rules that require different contract notes. Brokers say this “leads to issuance of multiple contract notes and maintenance of separate records at the trading member's end”.

“We suggest the possibility of issuing single contract notes to the client be explored. This will result in the issuance of a single contract to the client and minimise record maintenance, both at the client's and broker's ends,” the letter said. The letter also included a request for exemption from certification exams for people with experience or professional qualifications, and relief from multiple inspections in a year.

Brokerages feel a single contract note would help reduce documentation in a market in which a significant portion of notes are still sent in physical form and internet penetration isn’t substantial. A McKinsey & Company report dated December 2012 had stated 90 per cent of the country's population wasn't connected to the internet.

Vinay Agrawal, executive director at Angel Broking, said the move could save brokerages a lot of paperwork. “More than half the clients still use physical contract notes. Many don't have an email address or don't access it that frequently,” he said.

Nitin Jain, head (retail capital market), Edelweiss Financial Services, said the proposed move would help clients get an aggregated perspective on trades. “The current system is not very customer-friendly, with all the details of different orders executed at different times in different segments. It would be far more useful if a client can get a summary in one place, with price and quantity information,” he said.

An email sent to the regulator on the matter did not elicit a reply.