SEBI flags newspaper ad on dabba trading: Why it’s illegal? what investors should know

Market regulator SEBI on Monday took serious note of an advertisement, published in a Hindi daily, promoting dabba trading activities.

Dabba trading violates provisions of the Securities Contracts (Regulation) Act, 1956, SEBI Act, 1992, and Bhartiya Nyay Sanhita, 2023, and pose significant risks to investors, the regulator said in a statement.

SEBI has issued a formal communication to the newspaper expressing concern over the publication of an advertisement that encourages unlawful trading practices and potentially misleads investors.

"It is reiterated that dabba trading is illegal, and SEBI is committed to safeguarding investor interests through regulatory enforcement, awareness, and coordination with law enforcement agencies. Investors are advised to remain vigilant and not to deal with any entity offering illegal trading services," the regulator said.

"A complaint has also been lodged with the cyber police, seeking appropriate legal action against the entity and other entities involved," it added.

The matter has also been brought to the attention of the Advertising Standards Council of India (ASCI) to assess violations of advertising standards and ensure corrective steps.

What is Dabba trading?

Dabba trading is an illegal mode of trading in securities where trades are not executed on official stock exchange platforms but are settled internally by dabba operators. Since such trades are not executed on official stock exchange platforms, investors can not avail the grievance redressal mechanism of stock exchanges.

It offers no benefits of safe and guaranteed trades done on stock exchanges.

“Dabba trading is illegal. SEBI is committed to safeguarding investor interests through regulatory enforcement, awareness, and coordination with law enforcement agencies,” SEBI said in a statement.

"It is reiterated that dabba trading is illegal, and SEBI is committed to safeguarding investor interests through regulatory enforcement, awareness, and coordination with law enforcement agencies," SEBI said.

The regulator has urged all media houses to exercise due diligence before accepting and publishing advertisements related to financial products and services.