Alok Churiwala, MD of Churiwala Securities (stock broking firm), said: “The more difficult we make it for investors to access formal markets, the more they get attracted towards avenues like dabba trading.
Sebi’s recent rule mandates investors to bring in upfront margins for every trade they do, in the form of cash or shares lying in the demat account that can be pledged. Further, instead of giving power of attorney (POA) to brokers to access shares, investors now have to pledge their shares directly with depositories in favour of the broker.
“The requirement of paying margins upfront would restrict individuals from trading freely, and to that extent, some form of arbitrage could come into play that may give rise to a parallel market. Having said that, this may not be an adequate incentive for most to move to dabba trading
yet,” said Sandip Raichura, CEO (retail), Prabhudas Lilladher.
Dabba trading has existed primarily for rotation of black money, i.e. conversion of black money to white, or for taking positions in the market that otherwise a person could not have taken in his name, said experts.
Investors do not have to furnish their PAN, there are no margin or KYC requirements, and no elaborate scrutiny of transactions. Effectively, there is no securities transaction tax, commodities transaction tax, or income tax to be paid since the settlement is in cash, mostly on a weekly basis.
“All the pain points, which are part of the formal exchange trading mechanism, are largely done away with on this platform. The system is relationship-driven and traders do not have to worry about harassment by tax authorities for large transactions,” said the broking official cited above.
Investors do, however, face the risk of settlements not being honoured. “This system is conducive to small and medium players, who have access to sustained cash flows. Large investors will avoid this platform as there is no guarantee of settlement,” said Churiwala.
Dabba trading in equities had come to a standstill following demonetisation in 2016. The platform has seen a surge in activity over the past year, with higher margins coming into play and compliance norms getting tighter for brokers.
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