Dabba trading, an illegal practice in the financial markets, has made a comeback amidst heavy fluctuations in the stock market and increased scrutiny by SEBI (Securities and Exchange Board of India) on the futures and options (F&O) segment. According to estimates, the daily volume of dabba trading has surged to ₹100 Lakh Crore, accounting for 20% of the total daily F&O trading volume in the Indian stock market.
Why is Dabba Trading Gaining Traction?
A report by Financial Express highlights several reasons behind the rise in dabba trading:
• No Tax or Fees: Unlike formal trading channels, dabba trading requires no paperwork, margin money, or taxes.
• Ease of Entry: It has a low entry barrier, making it attractive to traders.
• Shift in Focus: Due to SEBI’s new F&O guidelines, which may result in a 40% reduction in trading volumes, traders are turning to dabba trading, commodity trading, and even gaming platforms as alternatives.
The Risks of Dabba Trading
Despite its appeal, dabba trading is fraught with risks:
1. Illegal Practice: SEBI has declared dabba trading illegal as it is conducted outside regulated stock exchanges.
2. No Legal Recourse: Investors cannot lodge complaints if they incur losses or if operators abscond with their money.
3. High Risk: Investors knowingly take on these risks. Reducing taxes on legitimate trading of assets like gold and silver could help curb the practice.
Technological Advancements Supporting Dabba Trading
Dabba trading persists because of its potential for quick profits. Many small traders, unable to meet the requirements of the F&O market, are drawn to it. Moreover:
• Software and Apps: Dedicated software and mobile applications facilitate dabba trading. A simple Google search reveals multiple platforms offering these services.
• Broker Intermediaries: Brokers act as intermediaries, connecting buyers and sellers while earning a commission.
Penalties for Dabba Trading
SEBI and stock exchanges regularly warn investors about the dangers of dabba trading. Under the Securities Contracts Regulation Act of 1956, dabba trading is explicitly illegal. Offenders can face:
• Imprisonment: Up to 10 years.
• Fines: Up to ₹25 crore.
Regulatory authorities remain vigilant, but the lure of quick gains continues to sustain this unlawful practice.
