Dabba Trade Seen At Rs 6,000 Crore A Day

Volume exceeds that on BSE and NSE

Suddenly, dabba trading has gained momentum on the stock exchanges.

According to one conservative market estimate, dabba trading volumes top the combined trading volumes on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).

Dealers at local brokerage houses put the total trading turnover in the dabba segment at close to Rs 6,000 crore daily, versus a turnover of around Rs 4,000 crore on the two bourses.

Many of those indulging in dabba trading are former members of the NSE who have surrendered their cards for various reasons.

Dabba trades are essentially a number of unofficial parallel exchanges. They are similar to the kerb trades on the Calcutta Stock Exchange.

Dabba trading imitates most of the functions of the exchanges, with one key broker acting as the exchange, through whom the transactions are routed. Much of the trading operates on trust and incidents of defaults are rare.

Many of the those in the dabba trading rings are also bona fide members of the major stock exchanges.

Brokers on Dalal Street indicate that dabba traders are particularly active in the derivatives segment.

A number of traders with knowledge of derivatives have set themselves up as centres of these mini-trading platforms.

Stock exchanges do not have any control on these trades since it is difficult to prove the illegal transactions.

The main attraction of dabba trades for investors is that nothing is official and it saves them from declaring income and paying tax on it. There are no official records to show the transactions.

Sebi officials said there was very little that could be done since it was happening outside the purview of the exchanges.

However, sources pointed out that with the entry of the dabba trades into the derivatives segment there were chances of a spillover of these unofficial trades into the official market.

"If huge positions are built up and one cannot give deliveries or make payments, it will have a spillover effect," said a broker.

The fact that the volumes in dabba trading have surpassed the volumes of the major bourses is also a cause for concern since it means that brokers are paying more attention and allotting more resources to the unofficial market rather than the official trading mechanism.

Another can of worms

Former members of NSE who have surrendered cards are involved in trades

Dabba trades are similar to the kerb trades on the CSE

Traders are particularly active in derivatives segment

Bourses do not have any control as it is difficult to prove the illegal deals