Dabba trading – Why you must not do it?

Dabba Trading – Meaning

Dabba trading means buying and selling of shares by those who are not members of a recognized stock exchange or buying and selling shares beyond the trading system of a recognized stock exchange.

Why you shouldn’t do it

Generally, Dabba trading is carried out by those, who are popularly known as ‘Dabba operators’. They receive buy and sell orders from their clients at prevailing market prices. Instead of executing them in NEAT or BOLT, they enter in their own system/books. The settlement is also done by such operators without clearing corporation. So, unlike in a case of proper market trade, where clearing corporation assumes the position of a counterparty, Dabba operator himself becomes the counterparty.

As per the Securities Contracts (Regulation) Act, 1956 (SCRA), trading in the shares of companies between persons other than members of a recognized stock exchange is illegal. All the trades by these members should happen on the platform of the exchange. Clients indulging in Dubba trading do not get the comfort of the exchange’s protective mechanism namely, trade and settlement guarantee. In case of any dispute, clients will not have any recourse to exchange and SEBI’s grievance redressal system, rather they may invite legal action as Dabba trading is illegal.

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Author and Assistant Professor in Finance, Ardent fan of Arsenal FC. Always believe "The only good is knowledge and the only evil is ignorance - Socrates"
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