Economy / Stock Market / Dabba Trading
Dabba Trading
What is Dabba Trading?
- Dabba trading is an informal trading practice occurring outside stock exchanges, where traders speculate on stock price movements without actual ownership.
- This leads to unregulated and illegal gambling on stocks.
- In dabba trading, investors bet on stock prices without engaging in real transactions, resulting in profit or loss based on price fluctuations.
- For instance, if an investor bets on a stock at ₹1,000 and it rises to ₹1,500, they gain ₹500.
- Conversely, if it falls to ₹900, they owe the difference to the dabba broker.
- Broker's profit mirrors investor's loss and vice versa, especially during bull runs or bear markets.
Legality:
- It's considered an offence under Section 23(1) of the Securities Contracts (Regulation) Act (SCRA), 1956.
- Upon conviction, it can lead to imprisonment for up to 10 years, a fine of up to ₹25 crore, or both.
Issues Associated:
- Cash Transactions: Transactions are conducted with cash using unrecognized software terminals, enabling dabba traders to avoid taxation. This cash-based operation places them beyond formal banking oversight, resulting in revenue loss to the government.
- Lack of Security to Investors: Operating outside regulatory boundaries means investors lack formal safeguards for protection, dispute resolution, and grievance redressal available in exchanges. The primary risk is broker default, insolvency, or bankruptcy, leaving investors vulnerable.
- Black Money: Dabba trading could foster the growth of black money and a parallel economy, heightening risks such as money laundering and criminal activities.
How can Dabba Trading be Prevented?
- Strict Enforcement of Laws: The Securities Contracts (Regulation) Act, 1956 already prohibits 'dabba trading' with severe penalties upon conviction. However, there's a need for stricter enforcement and punishment to deter others from such activities.
- Increasing Awareness: Retail investors should be educated about the risks of 'dabba trading'. Financial regulators can conduct awareness campaigns to disseminate information.
- Monitoring Social Media and Mobile Apps: 'Dabba trading' often occurs via mobile apps and social media. Regulators can monitor these platforms and take action against promoters or participants.
