‘Dabba Trading’ hurting investors: NCDEX

Commodity exchange NCDEX today said Punjab and Haryana...

Commodity exchange National Commodity & Derivatives Exchange Ltd (NCDEX) today said Punjab and Haryana are in the list of few states,where ‘Dabba Trading’-an illegal trading platform,is quite prevalent causing huge losses to investors as well as state exchequers.

“Dabba Trading is quite prevalent in certain centers of northern states,including Punjab,Haryana,Uttar Pradesh Rajasthan and even in Gujarat,” NCDEX Chief Business Officer Vijay Kumar told reporters here today,while,emphasizing on containing this illegal activity on urgent basis.

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.

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A dabba operator acts as a principal to all the trades and not as an agent of the client.

Stressing that there have been many instances of commodity investors having lost their money in Dabba trading,he cautioned investors to stay away from it and invest through recognized commodity exchanges.

Asked about the quantum of Dabba Trading,Kumar said that the volume of this illegal trading was expected to be equal to the commodity business carried out through legal channels. “It (volume of Dabba trading) is as much as of legal trade,” he informed.

NCDEX carries out daily commodity trade of Rs 3,000 to 4,000 crore and Punjab and Haryana contributes Rs 150 to 200 crore to total trade per day.

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Dabba Trading refers to the practice of trading with a broker through 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,” he said,while stating that all transactions take place on a ‘notepad’.

Recognized commodity exchanges normally impose 5 to 15 per cent of contract value as margin and ensure a daily mark to market settlement.

“Even if an investor manages to book profit on a commodity futures transaction carried outside the ambit of commodity exchange,such an investor may suffer a loss if broker involved in dabba trading goes insolvent,” he said.

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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,” he said.

He also said national level awareness workshops are being organized to make Police departments of states aware of Dabba Trading activity.