The Securities and Exchange Board of India (SEBI) has gone on a campaign overdrive to curb ‘dabba trading’ but the police says that the regulator's hesitance in filing a case in several cases is letting violators get off the hook.
Sources close to the Mumbai police department told Moneycontrol that cops are unhappy with SEBI for not registering a police complaint even as the regulator sends them details about illegal hoax trading that takes place in the city as well as in several hubs around the country.
In 'dabba trading', traders bet on movements of stock prices through cash. This system works entirely on trust; traders are often allowed to invest without having adequate collateral, and trades are typically cash-settled -- meaning if a trader buys a stock for Rs 100 and sells it for Rs 110, he simply gets Rs 10 after the position is squared off.
Since the system works outside the formal stock exchange system, there are few transaction costs and zero taxes to be paid.
In the absence of regulation, defaults also take place, sometimes resulting in players having to resort to pressure tactics and extortion to recover money.
SEBI has taken action against such activity, which is prevalent in Mumbai, Kolkata, Ahmedabad, Indore, Nagpur and Sri Ganganagar in Rajasthan.
But a source in the police department says that sometimes the action is not enough. "SEBI sends details of dabba trading in intervals with specific information about location and traders profiles. However, when we ask the regulator to register a formal complaint with us, it backs off."
The lack of a formal complaint means police are often unable to make a strong case when the matter reaches court.
"It makes the case weak in trial court," another source said. "When the regulator itself files a complaint, it will make for a strong case."
Moneycontrol reached out to SEBI for comments last week but did not get a response.
Famously, SEBI's 2016 crackdown on illegal dabba trading in Nagpur suffered an upset when the high court rapped the city's cops for filing the case without authority.
When the matter reached the Supreme Court, the apex court insisted on SEBI becoming a party to the case.
In this case, Nagpur police's Economic Offences Wing had pegged dabba trading volumes in the city to be about at Rs 10,000 crore per month.
The overall volume of the dabba trading across the country is estimated at Rs 1 lakh crore a day.
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