Dabba Trading

According to NCDEX(National Commodity & Derivatives Exchange Ltd ), Dabba trading is prevalent in Punjab and Haryana, apart from some other northern states. Dabba Trading is an illegal trading platform which causes losses to investors as well as state exchequers. The volume of this illegal trading was expected to be equal to the commodity business carried out through legal channels.

NCDEX has a daily turnover of of Rs 3,000 to 4,000 crore and Punjab and Haryana contributes Rs 150 to 200 crore to total trade per day.

The dabba trading is exactly the same like any other trading on the exchange, the only difference is that the investor’s trades do not get executed on the stock exchange system but in the dabba operator’s books only. A dabba operator acts as a principal to all the trades and not as an agent of the client, essentially bypassing the regulations of exchange in a bid to save transaction charges and margin requirements.

In Dabba Trading, there will be very low or no margin obtained from investors and no contract note or exchange order is provided to an investor.

Recognized commodity exchanges normally impose 5% to 15% of contract value as margin and ensure a daily mark to market settlement. The exchange can ensure that the counter party respects the trade/ contract terms.

In dabba trading, even if an investor makes profit on a trade, he may suffer a loss if broker involved in dabba trading goes insolvent. Also, due to many brokers unscrupulous practices, every year, numerous investors lose money.

Centre and States also loss revenues due to Dabba Trading. Commodity futures trading is a source of revenue to some state governments by way of levying stamp duty but that revenue will not accrue in case of dabba trading. Service tax payable by members is also evaded by unscrupulous brokers by indulging in dabba trading.