“Dabba Trading” or we can call it “Bucketing” and it is a process used by brokers to route their client’s trades outside the Stock/Commodity exchange. Dabba means box and a dabba operator, in stock market terminology dabba trader is an individual who indulges in dabba trading and is an unlawful action where a stockbroker executes a customer’s trade without taking it to a stock exchange with the hope of making some gains at a future date. In USA., the broking house that engages in this activity are called bucket shops.
A dabba operator acts as a principal to all the trades and not as an agent of the client. He is a counter party to the trades, whereas, he should be the Clearing Corporation who guarantees trades on the BOLT/NEAT system. This kind of operation, where trade is kept within the books of the operator is called “dabba” in the popular market terms.
A dabba operator allows the client to carry forward the trade, be it in cash or in derivative segment for a period, not necessarily prescribed by the stock exchange. The cash trade is not settled on rolling basis and the derivative trade may not have a month-end settlement cycle. Thus dabba trading can be equivalent to gambling as an individual is indulging in it to bypass the system.
Online Dabba Trading System
These fraudsters have gone hitech and fraudlent practice is seen in the F&O segments because the exchanges allows the modification of client codes in the F&O segments by the brokers at their choice without any security mechanism or supervision by the exchanges.
• The client places an order for buy or sells position on the exchange in the F&O segments. The trades is executed on the exchange and reported to the client.
• Within few second, the broker execute the reverse transaction where by the position of the client on the exchange becomes nil.
• Then the broker changes the client code of the reverse transaction into a different client code and thus the contract note is generated for the transaction done by the client only and even if the investor verify the transaction on the exchange, it will not show the reverse transaction in his client code as the client code has already been changed.
• Subsequently, when the client squares the transaction, the similar reverse transaction is executed and client code is changed.
• Thus, as the net position on both the dates of buying and selling is nil, the ultimate profit or loss accrued to the client vis-à-vis broker only.
• Normally, in such cases, the broker will not issue the contract notes and will report the transactions manually. Some will provide only the MTM bills that too just computer output on the plain paper without any stamp/letterhead so that these can not be used as evidence against them.
• The main risk to the investor is whenever, the broker suffer heavy losses due to risk they undertake due to dabba trading, they are likely to dispute the transactions or abscond. Most of the brokers who had absconded in last three years are due to losses suffered due to such frauds.
• Some of the fraudster have developed the software whereby , the moment transaction is executed in the client account, an automatic reverse transaction is executed so that these manipulation can be done at the large level because manually it required a number of people.
Why it is Banned in India?
Dabba trading is banned as it is harming society in following ways :
- Loss to nation in form of no tax being paid for every trade executed. STT (Security Transaction Tax is not paid as it involves manipulation/forgery of STT which is a more serious offence, i.e. embezzlement of government revenue.
- Black Money gets routed into it as no official receipts are issued for it.
- Evading of Income Tax as Profits are not reflected.
- Riches to rags story can be seen as dabba traders run away with clients money when things do not work their way.
- Know your client i.e. KYC norms are not followed.
- Profit may flow in drug trafficking network or organizations funding terrorism.
It is an offence to indulge in dabba trading and see the rules and regulations before going for it as ignorance is no excuse
- The practice of “Dabba Trading” is covered under Regulation 3 and 4 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Markets) Regulations, 2003 & is punishable under Section 15 HA of SEBI Act, 1992.
- Dabba Trading also attracts Indian Penal Code and Information Technology Act, 2000 apart from the provision of SEBI Act
What is your Responsibility
India is a force to reckon with and thus we should not tarnish her image as we have achieved a “Place of Pride and thus it is the moral responsibility to report all instances of dabba trading in our locality. Remember healthy market is the foundation of wealth creation and Gujarat Police is doing its bit by raiding at all premises indulging in dabba Trading. Make sure that one keeps always from all these mal practices and trades responsibly through the stock exchanges only. We appeal all the clients who are trading through dabba to leave this methodology and use the proper transactions in life and it will bear fruits for you for the life time.
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As a commitment to inculcate ethical trading among our clients, we do not provide our services to Dabba traders. So, if you want to be associated with us, you need to be thinking straight and trade in a legal way. We believe in ahonest and ethical way of trading and we uphold the same with our relationship too.
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