Markets set to implement common contract note framework this week

After multiple extensions over the past year, the Indian markets are set to implement the Common Contract Note (CCN) framework this week in a move expected to benefit foreign portfolio investors (FPIs) and other institutional players, and seen streamlining trade settlements.

 

A contract note serves as a formal record of transactions, detailing the number of shares, price, brokerage charges, taxes, and other key information. Currently, brokers issue separate contract notes for each exchange, even for the same order, often leading to differences in pricing.

 

Under the new system, a single weighted average price (WAP) will be calculated for orders executed across both the BSE and the NSE, with brokers issuing a unified contract note.

 

Market participants said that the absence of a single electronic contract note had previously restricted FPIs to trading on just one exchange, even if better prices were available on the other.

 

“Institutions were unable to secure the best prices and optimal execution for their orders,” said a market insider, noting that the push for CCN came primarily from FPIs. The shift is expected to enhance interoperability between exchanges.

 

While the framework was first announced in May 2024, its rollout was delayed multiple times — first to August 2024, then to January this year, and later to March.

 

Sources indicated that after extensive mock trading sessions and industry-wide preparations, the system is now ready for implementation. However, many have highlighted teething issues and operational cost and complexity for the transition.

 

Over the past three weeks, stock exchanges, clearing corporations, and market players conducted multiple tests, including 10 rounds of user acceptance tests (UATs) this month alone.

 

As of now, nine custodians under NSE Clearing and two under BSE’s Indian Clearing Corporation (ICCL) have confirmed their readiness. Custodians play a crucial role in facilitating FPI and institutional trades by holding their securities and funds.

 

Some market participants warned of possible issues, particularly due to differences in how exchanges report trade values via straight-through processing (STP) — an automated system for transaction processing.

 

“While NSE reports trade values in two decimal places, BSE uses four decimal places in STP files. This inconsistency could lead to a surge in hand delivery trades, requiring manual broker intervention,” explained a participant.

 

There are also concerns about high-volume days, such as index rebalancing, where differences could have a larger impact. Additionally, some custodians have flagged that integrating the new system may require significant core changes and incur substantial costs.

 

“FPIs are well versed with the current process and this change doesn’t change the status quo very significantly. Given the changes required to the systems of the players, opinion seems divided on how such a revised format can enhance the experience of various stakeholders,” said another participant. 

Picking up pace

Common contract note to soon be reality after months of extension

  Single weighted average price will be calculated for orders executed across both the exchanges; move to help institutional investors 

  Mock-trading, system preparedness tests going on for weeks; around 11 custodians have confirmed their readiness