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. |
| Example | If 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. |
| Risks | Lack 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 implications | 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 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.
