What is Dabba trading (Definition): The investor’s trades [buy/sell orders] do not executed on stock exchanges system but in the dabba operators books only.
Top reason for dabba trading: mainly to save on tax and trading fees. But traders don’t know, dabba trading or trading in commodity (MCX / NCDEX) futures outside the FMC-regulated exchanges is illegal as per the Forward Contracts Regulation Act (FCRA), 1952.
Dabba trading is also risky as it does not provide protection against counterparty default risk as guaranteed by commodity futures exchanges for trades done on them.
Market controller Sebi may break down on dabba trading that is said to be out of control in cities like Rajkot, Ahmadabad, Mumbai and Indore, following (consumer) complaints from market participants.
Dabba trading activities is 70% more existing in equity trading rather than commodity market. Look below image:
(GIVEN by LOKESHWARRI SK BL RESEARCH BUREAU)
SEBI is asking, are Gujaratis losing interest in equity trading?
SEBI sources said: finding exact information from market participants about such illegal activities, has furthermore written to the state governments seeking information in this regard.