Dabba trading, which is an illegal, off-market form of share trading, peaked during the three hours when the BSE network was down on Thursday.
“Many punters had open buy or sell positions when the outage happened. So, many of them squared off their positions in the dabba market, thus, reducing their risk,” said a senior stock market operator on condition of anonymity.
In dabba trading, which is done entirely in cash, a client places, say, a buy order for a particular share with the dabba operator, who acts like a mini stock exchange. The dabba operator matches this with a sell order he has received from another.
During trading hours, the prevailing price on the BSE is usually taken as the benchmark price at which these orders are executed. When markets are closed — or when trading is suspended as on Thursday — the dabba operators themselves fix the price of shares depending on demand and supply.
When the buyer finally sells the shares, he is paid difference between the buying price and the selling price if the shares have risen, or he has to pay the difference if they have fallen. Unlike in the stock exchanges, dabba operators don’t ask for any margin money.
Since the entire transaction is based on word of mouth, dabba operators accept orders only from people they know or those who are recommended by people they consider reliable.
The volume on the dabba market jumped about 35% to about R1 lakh crore during the three hours when the exchange was down, sources said.
“You should treat these figures with a pinch of salt as they are highly inflated. My feeling is that dabba trading volumes are only about a tenth of what dabba operators claim,” the senior stock market operator said.
Dabba trading is very popular in Mumbai, Gujarat, Rajasthan, Madhya Pradesh and Delhi.
A dabba operator matches buy orders with sell orders.
The buyer is paid the difference between buying and selling price if shares rise, or pays the difference in case the price declines.