Dabba Trading
Dabba trading is an illegal, unregulated form of trading in securities where transactions occur outside official, regulated stock exchanges like the National Stock Exchange (NSE) or Bombay Stock Exchange (BSE). The term "dabba" literally means "box" or "container" in Hindi, symbolizing the secretive, off-the-books nature of the practice.
How Dabba Trading Works
In dabba trading, an unregistered broker or "dabba operator" essentially runs a parallel, black-market trading platform:
- Off-Exchange Transactions: Instead of routing trade orders to an official exchange, the operator records the trades in their own internal ledger or "notebook".
- Betting on Prices: Participants are effectively placing bets on the price movements of stocks or commodities without actually buying or selling the underlying securities.
- Cash Settlements: All profits and losses are typically settled in cash between the trader and the operator, leaving no official paper trail.
- Tax Evasion: A major incentive is evading taxes like Securities Transaction Tax (STT), Goods and Services Tax (GST), and capital gains tax, as no official records are generated.
Risks and Legal Consequences
Dabba trading is highly risky and illegal in India under the Securities Contracts (Regulation) Act, 1956 (SCRA), as well as the Indian Penal Code.
- No Investor Protection: Since the trades are unregulated, investors lose access to legal protection, dispute resolution mechanisms, and grievance redressal systems provided by the Securities and Exchange Board of India (SEBI).
- High Risk of Fraud: The entire system relies on the operator's integrity. Operators can disappear, default on payments, or manipulate prices, making fund recovery nearly impossible.
- Severe Penalties: Individuals involved in dabba trading, if caught, can face imprisonment for up to 10 years, a fine of up to ₹25 crore, or both.
- Market Integrity: This practice can potentially distort market dynamics and has been a subject of frequent crackdowns by authorities like SEBI, the police, and the Enforcement Directorate (ED).
Regulators actively caution investors against engaging in such schemes and advise using only legitimate, SEBI-registered brokers and exchanges.
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