What is ‘Dabba Trading” and why it is illegal?

The National Stock Exchange (NSE) on Monday cautioned the investors in some illegal “dabba trading”. 

The statement by NSE came to caution the investors regarding some fraudsters who are running illegal dabba training with guaranteed returns to its investors. 

WHAT IS “DABBA TRADING”?

Dabba trading is a form of illegal practice adopted by some fraudsters who are assuring its investors the guaranteed return for the product service or idea they are investing in the stock market. 

It is an illegal trading activity which has been banned by the Securities and Exchange board of India. The Securities Contracts (Regulation) Act, 1956 (SCRA) considers this trade as illegal. 

Dabba trading takes place in a parallel stock market where the trade of shares operates outside the recognised stock exchange. 

The NSE has cautioned the investors not to believe or subscribe to any such scheme or product offered by any person who assures a guaranteed return. 

Dabba trading is a form of trading in shares where traders allow the investors to trade in equities outside the stock market.

NSE stated that certain entities like Shri Parasnath Commodity Private Limited, Shri Parasnath Bullion Private Limited, Faary Tale Trading Private Limited and Bharat Kumar associated with Trade with Trust are providing illegal trading platforms to manipulate its investors. 

According to NSE, the above entities are not a registered member of the exchange for which a police complaint has also been filed. 

The exchange cautions the individual not to subscribe or indulge in any of the offers guaranteed by any entity who assures a return in the stock market. If a person subscribes to any such product or scheme then that person is at his/her own risk as such illegal trading platforms are not approved by the exchange. This illegal dabba trading has also been prohibited by the law. 

This illegal activity has been prohibited by SEBI under regulations 3 and 4 of SEBI Prohibition of Fraudulent and Unfair Trade Practices. It is also punishable under the Indian Penal Code and the Information Technology Act of 2000.

Due to the absence of being governed by any rules and regulations some traders find it profitable. Since transactions are done in cash and orders taken personally by the operators, this is not subject to income tax.

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