{"id":34970,"date":"2023-04-15T05:47:47","date_gmt":"2023-04-15T00:17:47","guid":{"rendered":"https:\/\/vajiramandravi.com\/current-affairs\/?p=34970"},"modified":"2025-04-20T20:21:34","modified_gmt":"2025-04-20T14:51:34","slug":"dabba-trading-and-its-impact-on-economy","status":"publish","type":"post","link":"https:\/\/vajiramandravi.com\/current-affairs\/dabba-trading-and-its-impact-on-economy\/","title":{"rendered":"Dabba Trading and Its Impact on Economy"},"content":{"rendered":"<h3><strong>What\u2019s in today\u2019s article?<\/strong><\/h3>\n<ul>\n<li><strong>Why in news?<\/strong><\/li>\n<li><strong>Dabba trading<\/strong><\/li>\n<li><strong>What is \u2018dabba trading\u2019?<\/strong><\/li>\n<li><strong>Where does it become particularly problematic?<\/strong><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h2><strong>Why in news?<\/strong><\/h2>\n<ul>\n<li>In the past week, the National Stock Exchange (NSE) issued a string of notices naming entities involved in dabba trading.<\/li>\n<li>The bourse cautioned retail investors to not subscribe (or invest) using any of these products offering indicative\/assured\/guaranteed returns in the stock market as they are prohibited by law.<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h2><strong>Dabba trading<\/strong><\/h2>\n<h2><strong>What is \u2018dabba trading\u2019?<\/strong><\/h2>\n<ul>\n<li><strong>About<\/strong>\n<ul>\n<li>Dabba (box) trading refers to informal trading that takes place outside the purview of the stock exchanges.<\/li>\n<li>In this form of trading, brokers execute trades for clients without placing them on stock exchanges.\u00a0<\/li>\n<li>Instead, the brokers maintain their own trading books or &#8216;dabba&#8217; and settle trades with clients outside the exchange.<\/li>\n<li>Traders bet on stock price movements without incurring a real transaction to take physical ownership of a particular stock as is done in an exchange.\u00a0<\/li>\n<li>In simple words, <u>it is gambling centred around stock price movements<\/u>.<\/li>\n<\/ul>\n<\/li>\n<li><strong>Example<\/strong>\n<ul>\n<li>An investor places a bet on a stock at a price point, say \u20b91,000. If the price point rose to \u20b91,500, he\/she would make a gain of \u20b9500.\u00a0<\/li>\n<li>However, if the price point falls to \u20b9900, the investor would have to pay the difference to the dabba broker.\u00a0<\/li>\n<li>Thus, it could be concluded that the broker\u2019s profit equates the investor\u2019s loss and vice-versa.<\/li>\n<\/ul>\n<\/li>\n<li><strong>Features<\/strong>\n<ul>\n<li>The primary purpose of such trades is to stay outside the purview of the regulatory mechanism.<\/li>\n<li>These transactions are facilitated using cash and the mechanism is operated using unrecognised software terminals.\u00a0<\/li>\n<li>Other than this, it could also be facilitated using informal or kaccha (rough) records, sauda (transaction) books, challans, DD receipts, cash receipts alongside bills\/contract notes as proof of trading.\u00a0<\/li>\n<\/ul>\n<\/li>\n<li><strong>Legal provisions<\/strong>\n<ul>\n<li>\u2018Dabba trading\u2019 is recognised as an offence under Section 23(1) of the Securities Contracts (Regulation) Act (SCRA), 1956.<\/li>\n<li>Upon conviction, can invite imprisonment for a term extending up to 10 years or a fine up to \u20b925 crore, or both.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2>\u00a0<\/h2>\n<h2><strong>Where does it become particularly problematic?<\/strong><\/h2>\n<ul>\n<li><strong>Escape taxation<\/strong>\n<ul>\n<li>Since there are no proper records of income or gain, it helps dabba traders escape taxation.<\/li>\n<li>They would not have to pay the Commodity Transaction Tax (CTT) or the Securities Transaction Tax (STT) on their transactions.\n<ul>\n<li>CTT is a tax levied by the Indian government on certain commodity futures contracts traded on commodity exchanges in India.<\/li>\n<li>STT is a tax levied on certain securities transactions, including the sale and purchase of equities, derivatives, equity-oriented mutual funds, and exchange-traded funds (ETFs).<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n<li><strong>Risk of entity becoming insolvent or bankrupt<\/strong>\n<ul>\n<li>The primary risk entails the possibility that the broker defaults in paying the investor or the entity becomes insolvent or bankrupt.<\/li>\n<\/ul>\n<\/li>\n<li><strong>Outside the regulatory framework<\/strong>\n<ul>\n<li>Being outside the regulatory purview implies that investors are without:\u00a0\n<ul>\n<li>formal provisions for investor protection,\u00a0<\/li>\n<li>dispute resolution mechanisms and grievance redressal mechanisms that are available within an exchange.<\/li>\n<\/ul>\n<\/li>\n<li>Clients, on entering the dabba ecosystem, were harassed by the broker\u2019s \u2018recovery agents\u2019 for default payments and refused payments upon profit.<\/li>\n<\/ul>\n<\/li>\n<li><strong>Encourage the growth of black money<\/strong>\n<ul>\n<li>Since all activities are facilitated using cash, and without any auditable records, it could potentially encourage the growth of \u2018black money\u2019 alongside perpetuating a parallel economy.\u00a0<\/li>\n<li>This could potentially translate to risks entailing money laundering and criminal activities.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<hr \/>\n<h3><strong>Q1)\u00a0What is Securities Transaction Tax (STT)?<\/strong><\/h3>\n<p>Securities Transaction Tax (STT) is a tax levied by the Indian government on certain securities transactions, including the sale and purchase of equities, derivatives, equity-oriented mutual funds, and exchange-traded funds (ETFs). The tax was introduced in 2004 and is aimed at helping the government raise revenue and regulate the securities market in India.<\/p>\n<p>&nbsp;<\/p>\n<h3><strong>Q2)<\/strong>\u00a0<strong>What is National Stock Exchange (NSE)?<\/strong><\/h3>\n<p>The National Stock Exchange (NSE) is a leading stock exchange located in Mumbai, India. It was established in 1992 and became the first electronic exchange in India. The NSE offers a platform for trading in equities, equity derivatives, debt instruments, and currency derivatives.\u00a0The NSE is a highly automated electronic exchange that uses cutting-edge technology to provide fast, transparent, and efficient trading. It offers trading in a wide range of securities, including stocks, mutual funds, exchange-traded funds (ETFs), and bonds.<\/p>\n<p>&nbsp;<\/p>\n<hr \/>\n<p><strong>Source:\u00a0<\/strong><a href=\"https:\/\/www.thehindu.com\/business\/explained-what-is-dabba-trading-and-how-does-it-affect-the-economy\/article66733211.ece#:~:text=Dabba%20(box)%20trading%20refers%20to,is%20done%20in%20an%20exchange.\" target=\"_blank\" rel=\"nofollow noopener\"><u>Explained | What is \u2018Dabba trading\u2019 and how does it affect the economy?<\/u><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>In dabba trading, brokers execute trades for clients without placing them on stock exchanges.<\/p>\n","protected":false},"author":5,"featured_media":34971,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[18],"tags":[],"class_list":{"0":"post-34970","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-upsc-mains-current-affairs","8":"no-featured-image-padding"},"acf":[],"_links":{"self":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/34970","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/users\/5"}],"replies":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/comments?post=34970"}],"version-history":[{"count":0,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/34970\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media\/34971"}],"wp:attachment":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media?parent=34970"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/categories?post=34970"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/tags?post=34970"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}