In an overnight move, Securities and Exchange Board of India (SEBI) has legalized dabba trading and has issued a notification to this effect. The move has caused a wave of relief for thousands of dabba traders all over India, who were causing loss of millions of rupees to the stock exchanges and government by saving on charges and taxes normally paid on all securities transactions.
SEBI has notified that all dabba traders must register with SEBI by paying Rupees one lac fee per annum (In cash). After such registration, they can continue to trade unhindered by any exchange, tax or police authorities. On the very first day, more than 5000 dabba traders from all over India registered themselves with SEBI. The figure is likely to cross over 20000 in a week or so.
Dabba trading is a street name for all such securities and commodities transactions that are not done on the trading platform of any stock exchange or commodities exchange, but are done between party to party and settled in cash.
Dabba trading today has grown to such proportions that it is almost a parallel market for securities and commodities, which also allows a lot of black money to channelize into the system through illegitimate means.
As per Securities Contract (Regulation) Act, 1956, and SEBI Act, 1992, all legitimate securities transactions must compulsorily be executed on the trading platform of any SEBI recognised stock exchange or commodities exchange. All such transactions invite levies and taxes, which dabba traders wilfully avoid paying to the exchanges or the government.
As per industry estimates, trades worth thousands of crores are executed through such dabba traders every day causing a heavy loss to the exchequer. Over the last few years, it has caused a decline of business for registered brokers and sub-brokers and has affected total business on the stock exchanges.
SEBI has come up with the unique solution to tackle this tricky problem. By registering these dabba traders, SEBI has converted this entirely illegal and economically unhealthy activity into a legal and safe business model for all dabba traders.