Dabba Trading

Dabba Trading

News: Recently, National Stock Exchange (NSE) issued a string of notices naming entities involved in “dabba trading”.

What is Dabba Trading?
 Dabba trading is a form of informal trading that takes place outside the purview of the stock exchanges.
 In this practice, traders bet on stock price movements without incurring a real transaction to take physical ownership of a particular stock as is done in an exchange. This results in gambling centered around stock price movements, which is illegal and unregulated.
 It is recognised as an offence under Section 23(1) of the Securities Contracts (Regulation) Act (SCRA), 1956 and upon conviction, can invite imprisonment for a term extending up to 10 years or a fine up to ₹25 crore, or both.

What are concerns around Dabba Trading?
 Transactions are facilitated using cash and the mechanism is operated using unrecognised software terminals, which helps dabba traders escape taxation. The use of cash means that they are outside the purview of the formal banking system. It results in a loss to the government exchequer.
 It could potentially encourage the growth of ‘black money’ alongside perpetuating a parallel economy, which could lead to risks entailing money laundering and criminal activities.
 Being outside the regulatory purview implies that investors are without formal provisions for investor protection, dispute resolution mechanisms and grievance redressal mechanisms that are available within an exchange.

What can be done to prevent Dabba Trading?
 The Securities Contracts (Regulation) Act, 1956, already prohibits 'dabba trading' and provides for severe penalties upon conviction. However, strict implementation is missing.
 Financial regulators can conduct awareness campaigns and disseminate information about the risks associated with such trades.
 'Dabba trading' is often facilitated through mobile apps and social media. Regulators can monitor these platforms and take action against those who promote or engage in it. 

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