What Is a Contract Note?
Intermediate
A contract note is the legally binding document a broker must issue to a client for every trade executed on their behalf. It records the exact terms of the trade — order and trade numbers, time of execution, quantity, price, brokerage, and all applicable taxes/charges — and serves as formal proof of the contract between broker and client. Exchanges require it to be issued within a fixed window (commonly within 24 hours of the trade), and it's an essential document for tax filing and dispute resolution.
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It must include order number, trade number, trade time, quantity, price, brokerage, and taxes/statutory charges (like STT and stamp duty) separately.
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It's issued per trading day/segment, and today is typically delivered electronically rather than on paper.
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It is the primary evidence in any dispute between an investor and broker over a trade's terms.
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A missing or delayed contract note is itself a regulatory violation the investor can report.
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→Charges Levied on an Investor by a Broker
Intermediate
The 'brokerage' fee is only one of several charges that appear on a contract note. Some are set by the broker itself; others are statutory charges the broker simply collects and passes on to the exchange, clearing corporation, depository, or government. Knowing the difference helps an investor tell which fees are negotiable and which aren't.
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Brokerage: the broker's own fee, either a flat amount per trade or a percentage of trade value — this is the negotiable part.
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Securities Transaction Tax (STT) / transaction tax: a government levy on the value of the trade, set by law, not the broker.
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Exchange transaction charges and SEBI turnover fees: small statutory fees passed through from the exchange and regulator.
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GST (or equivalent sales tax) on brokerage and exchange charges.
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Stamp duty: a state/government levy on the transfer of securities.
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Depository Participant (DP) charges: a separate fee for debiting shares out of your demat account when you sell.
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Account Maintenance Charges (AMC): a periodic fee (often annual) for keeping a demat/trading account open, independent of trading activity.
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→Book Closure & Record Date
Intermediate
Before paying a dividend, issuing bonus shares, or holding a general meeting, a company needs a way to freeze exactly who its shareholders are at a single point in time. Historically this was done through 'book closure' — the company temporarily closes its register of members and refuses to process any transfers for a specified window. In the modern dematerialized era, most companies instead use a 'record date' — a single specified date on which the depositories (NSDL/CDSL) simply take a snapshot of who holds the shares, without actually halting transfers or trading at all.
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Book closure: transfer books/register of members physically closed for a period; used more with physical shareholding.
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Record date: a single cut-off date for eligibility, with no interruption to normal trading — the standard method in the demat era.
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Both serve the same purpose: identifying exactly who is entitled to a corporate action's benefit (dividend, bonus, rights, AGM notice).
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A company announces the record date/book closure well in advance, alongside the corporate action itself.
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→What Is the No-Delivery Period?
Intermediate
When a company fixes a record date (or book closure) for a corporate action, the exchange also blocks out a matching 'no-delivery period' around it for that specific security. Trading continues as normal during this window, but no actual delivery/settlement of shares takes place — trades executed during the no-delivery period are simply carried forward and settled once the period ends. This exists purely to keep delivery timing lined up correctly with who is entitled to the corporate action benefit as of the record date.
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Trading is not paused during a no-delivery period — only the physical/electronic settlement of trades is paused.
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It applies to a single security around its own corporate action, not to the whole market.
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It prevents a mismatch where a trade settles at the 'wrong' moment relative to the record date, which could otherwise cause confusion over who is entitled to the benefit.
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The exchange announces the exact no-delivery dates alongside the record date/book closure for that stock.
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→Ex-Date & Ex-Dividend Date
Intermediate
'Ex-date' is the generic term for the first trading day on which a stock trades WITHOUT the entitlement to a specific corporate action — whether that's a dividend, bonus issue, stock split, or rights issue. 'Ex-dividend date' is simply the ex-date used specifically for a dividend. It's set so that only investors who own the shares before the ex-date will settle into ownership by the record date and thus receive the benefit; anyone buying on or after the ex-date is buying the stock 'ex' (without) that particular entitlement.
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Buy before the ex-date → you're entitled to the corporate action benefit.
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Buy on or after the ex-date → the seller keeps the entitlement, not you.
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For a cash dividend specifically, the stock price typically drops by roughly the dividend amount on the ex-dividend date, since that value is about to leave the company.
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The same underlying concept — ex-date — applies to bonus issues, splits, and rights issues, just without the price-drop-by-cash-amount effect a dividend causes.
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→Bonus Issue
Intermediate
A bonus issue is when a company gives existing shareholders additional shares for free, in a fixed ratio (e.g., 1:1 or 2:1), by converting part of its accumulated reserves/retained earnings into share capital. It doesn't change any shareholder's proportional ownership or the company's total value — it simply divides the same pie into more, smaller slices, typically to improve the stock's affordability and trading liquidity.
Example
In a 1:1 bonus issue, a shareholder holding 100 shares receives 100 additional free shares, ending up with 200 shares total.
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Total shareholder value is unchanged immediately after a bonus issue — share price adjusts down proportionally as share count goes up.
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It's funded from the company's own reserves, not from any new outside investor's cash.
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Bonus issues are often read as a signal of management confidence and are typically paired with an ex-date/record date, exactly like a dividend.
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Not to be confused with a stock split (covered next) — the accounting mechanics differ, but the practical effect on shareholders is very similar.
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→Stock Split
Intermediate
A stock split divides each existing share into multiple shares of proportionally lower face value — for example, splitting one share of $10 face value into two shares of $5 face value each. Like a bonus issue, it doesn't change the company's total value or any shareholder's proportional ownership; it's typically done to bring down a high per-share price and make the stock more affordable and liquid for smaller investors.
Example
In a 2-for-1 split, a shareholder holding 50 shares at $200 each ends up with 100 shares at approximately $100 each.
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A split changes the face value of each share; a bonus issue keeps face value the same but issues extra shares from reserves — the accounting differs even though the practical shareholder effect is similar.
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A 'reverse split' does the opposite — combining several shares into fewer, higher-priced ones — often used to boost a very low share price back above an exchange's minimum listing threshold.
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Total market capitalization is unchanged immediately after a split, all else equal.
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Splits are announced with their own ex-date/record date, just like dividends and bonus issues.
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→Share Buyback
Intermediate
A buyback (or share repurchase) is when a company purchases its own outstanding shares back from shareholders, either through a tender offer at a fixed premium or by buying gradually in the open market. Once repurchased, those shares are typically extinguished, reducing the total shares outstanding. Companies use buybacks to return surplus cash to shareholders, boost per-share metrics like EPS, or signal that management believes the stock is undervalued.
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Tender offer buyback: the company offers to buy a fixed quantity of shares at a set (usually premium) price; shareholders can choose to participate proportionally.
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Open-market buyback: the company buys shares gradually on the exchange over time, like any other market participant.
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Reducing shares outstanding mechanically raises EPS and can raise ratios like ROE, even with no change in actual profit.
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Buybacks are typically funded from free reserves or securities premium and are capped/regulated by securities law (e.g., as a percentage of paid-up capital).
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→Book Value
Intermediate
Book value is a company's net worth strictly according to its accounting records — total assets minus total liabilities, which is the same thing as shareholders' equity on the balance sheet. Book value per share divides that figure across every share outstanding, giving a rough per-share accounting 'floor' value, distinct from whatever price the market is actually willing to pay (covered via the P/B ratio in the Stock guide).
Formula
Book Value = Total Assets − Total Liabilities
Book Value per Share = Book Value ÷ Shares Outstanding
Example
A company with $500 million in assets and $300 million in liabilities has a book value of $200 million; across 20 million shares, that's $10 book value per share.
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Book value reflects historical accounting cost, which can differ significantly from what assets are actually worth today (e.g., older real estate carried at purchase price).
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It's most meaningful for asset-heavy businesses like banks and insurers, and less meaningful for asset-light businesses whose real value is in brand, people, or ideas.
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Book value rises when the company retains profit, and falls when it pays dividends larger than profit or takes a loss.
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Compare book value to market price via the P/B ratio, detailed in the Stock Market guide.
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→Settlement Cycle
Intermediate
The settlement cycle is the fixed number of business days between a trade's execution and its actual completion — when shares move into the buyer's demat account and funds move into the seller's account. Modern markets use 'rolling settlement,' where each trading day's transactions settle independently on their own fixed schedule (e.g., 'T+1' means a trade executed on day T settles on the next business day), rather than the older 'account period' system where an entire week or fortnight's trades were bundled together and settled all at once.
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T+1 rolling settlement (the current standard in many major equity markets) means: trade today, funds and securities change hands the very next business day.
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The clearing corporation nets everyone's obligations first, so each participant only pays or delivers their net position, not every individual trade separately.
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'Pay-in' is when buyers deposit funds and sellers deposit securities ahead of settlement; 'pay-out' is when the clearing corporation releases them to the other side.
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A failure to meet pay-in obligations (by either side) is what triggers the auction/close-out process covered later in this guide.
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