NSE lifts lid on dabba trading, tippers, issues warnings to 24 platforms

New-age tech tools and ‘mystery shoppers’ are helping the country’s top bourse stay ahead of the curve against dabba trading platforms and entities dolling out unsolicited investment tips. In the past one month, the National Stock Exchange (NSE) has issued close to two dozen warnings and advisories against such activities.

“We saw a rise of dabba trading or illegal trading platforms after the pandemic. Since then, we deployed various AI tools and increased surveillance of social media platforms. The market intelligence and investigation team is extensively tracking platforms such Telegram, Twitter and any individuals promoting illicit schemes on social media,” said an official.

“Our teams are engaging with ‘mystery shopping agencies’ to reach in localised circles, attend webinars, meet representatives of these entities, and visit the offices. The action is being taken after due process of investigation,” the official added. 

Mystery shopping is the concept used in the retail sector to gauge customer service experience. In the market context, an individual poses as a retail customer to unearth an illicit scheme and help in research and investigations.

The entities against which caution notices have been issued in the past few weeks include dabba trading operators, people offering guaranteed-return schemes and those giving stock tips or recommendations without any registered investment advisory (RIA) license. In certain cases, the exchange has logged police complaints as well.

Over the last year, NSE has been examining information or tips received about unauthorised or illegal activities such as collection of deposits assuring fixed or guaranteed returns.

In many cases, investors were found to be sharing user IDs and passwords relying on unsolicited messages circulating on social media and chat groups, where investors were lured with false promises of guaranteed or high returns by investing in various schemes including option contracts.

Meanwhile, dabba trading operators conduct trades outside the stock exchange platform to evade taxes. Such platforms had flourished after the pandemic amid a spurt in trading interest during the lockdowns.

Depending on the price movement, the participant either has to pay money or gains a profit. Industry experts say that usually tax avoidance and liberal margin requirements lure investors into such illegal platforms. However, these trades are typically done among closed-knit groups to avoid default risk.

"As dabba traders are not under the ambit of regulations, they are one-sided games and have no dispute resolution. The participants are made to believe that the dice is loaded in their favour as there is no margin maintenance or questions asked on entry. But later, the operators build pressure through wrongful means to recover money or when the investor has to collect money it is kept back for future trades,” said Arun Kejriwal, founder, Kejriwal Research & Investment Services.

With several caution notices, the exchange has warned investors that their participation in such illegal platforms is at their own risk, cost, and consequences.

"Often the operators ask for just 1 per cent margin of the total volume So while the order could be for 5,000 shares, only 50 are traded and reflected on the exchanges as volume,” explained Kejriwal.

While the Securities and Exchange Board of India (Sebi) has been clamping down on illicit trading activity, stock exchanges—seen as first level regulators—have taken a lot of onus upon themselves, say market observers.

In one of the notices, NSE noted that violations of certain norms under the Securities Contract (Regulation) Act (SCRA) can be punishable with imprisonment extended up to 10 years or with the fine up to Rs 25 crores or with both.

DABBA, UNBOXED

·         Dabba traders take positions outside stock exchanges — an illegal practice

·         Tax evasion, liberal margin requirements major reasons for participants

·         NSE examining tips received on unsolicited stock recommendations, assurance of guaranteed returns

·         AI tools, increased surveillance of social media deployed to track players

·         Telegram, Twitter, and chat groups under scrutiny

·         Taking help of ‘mystery shoppers’ to pose as decoy customers or investors to unearth illegal scheme