The National Stock Exchange (NSE) has cautioned investors against some fraudsters running illegal 'dabba trading' with assured returns to investors.
Cautioning investors, NSE asked them not to subscribe to any such scheme or product offered by any person or entity offering guaranteed returns in the stock market as the same is prohibited by law.
For any kind of disputes relating to such prohibited schemes, mechanisms such as benefits of investor protection under the exchange's jurisdiction, exchange dispute resolution mechanism and investor grievance redressal mechanism administered by the exchange, would not be available to investors, it added.
The cautionary statements came after NSE found that the entities -- Shri Parasnath Commodity Private Limited, Shri Parasnath Bullion Private Limited, Faary Tale Trading Private Limited and Bharat Kumar (associated with Trade with Trust) --were providing dabba or illegal trading platform with assured returns.
The NSE said that these persons are not registered either as a member or authorised persons of any registered member of the NSE.
What is dabba trading?
Dabba trading, which has banned by the Securities and Exchange Board of India (SEBI), is an illegal form of trading in shares that operates outside the purview of recognized stock exchanges. It involves a parallel stock market where traders can speculate on the direction of share prices and stock indices without a trading account, demat account, or providing KYC details.
According to the Securities Contracts (Regulation) Act, 1956 (SCRA), trading in shares of companies between persons other than members of a recognized stock exchange is illegal.
SEBI has prohibited activity under regulations 3 and 4 of SEBI Prohibition of Fraudulent and Unfair Trade Practices. Dabba trading is also punishable under the Indian Penal Code and the Information Technology Act of 2000.
Despite the risk involved, dabba trading can be profitable since it is not governed by any rules and regulations. Transactions are settled in cash and orders are taken personally by the operators of the dabba system. Since it is illegal, profits earned through dabba trading are not subject to income tax.
