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Dabba Trading

 

Source: TH

 

Context: The National Stock Exchange (NSE) has issued several notices in the past week warning retail investors not to subscribe or invest in dabba trading

 

About Dabba Trading:

Information
What is Dabba Trading?Informal trading outside the purview of stock exchanges centred around stock price movements. However, trading is done without actually buying or selling the stocks on a formal stock exchange.
ExampleIf an investor places a bet on a particular stock at a price point of Rs. 1000, and the stock price later rises to Rs. 1500, the investor would make a profit of Rs. 500. However, if the stock price falls to Rs. 900, the investor would have to pay the difference to the dabba broker.
RisksLack of investor protection, dispute resolution mechanisms and grievance redressal mechanisms available within an exchange; the possibility of broker defaulting in paying the investor or entity becoming insolvent or bankrupt
How is it facilitated?Transactions are facilitated using cash and operated using unrecognised software terminals
Why is it problematic?Helps dabba traders escape taxation and remain outside the purview of the formal banking system
Legal implicationsRecognised 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 crores, or both

 

About NSE:

National Stock Exchange of India Ltd. (est 1992; HQ: Mumbai)  is one of the leading stock exchanges in India. NSE is under the ownership of various financial institutions such as banks and insurance companies.