Demonetisation may sound death knell for dabba trading and how!: Economic Times: 23rd January 2017

Betting is one activity which will take a hard hit after demonetisation and it will take time before these `rings' restart. In fact, it is argued that the volumes in this business would decline significantly as the losses made presently in holding idle cash won on these successful bets, which is worthless, would be too high to handle. In the commodity market, `dabba trading' resembles this betting circuit. The rules of engagement are rudimentary. The participants know each other and there is a high element of trust. They trade in commodity futures based on say NCDEX prices and settle their transactions as per internal rules. There is no membership fee in the formal sense and there may or may not be any margin requirement. There is no tax paid as it is not formal and the transactions are hard to trace as they often may be oral or just noted down on paper. It is much like the gambling that takes place on Mumbai local trains every day where settlement takes place when the train reaches Borivali or Churchgate station. There is no commodity exchange to deal with and hence this market is beyond the purview of regulation of Sebi. This makes it a unique market given that it is efficient. With all settlements being in . 500 and ` cash, ` . 1,000 notes are important for dabba trade. The demonetisation move is a blow for such trading which has come to an end abruptly. This is actually a chance for the commodity exchanges to work towards bringing them on the organised platform. Simultaneously, there would be an incentive for them to do so as there is uncertainty relating to the future of dabba trading. The futures market can expect to see enhanced activity especially in agricultural commodities which were preferred on dabba as margins tend to be higher than for bullion on recognised exchanges. Volumes on dabba trade are estimated to be at least a multiple of 2 to what transpires on organised platforms and is concentrated in commodities like guar seed, castor seed, mustard and soya where there is vibrant trade on NCDEX. The erosion of volumes in such trades would mean migration to organised platforms which is good as it will add more depth to the market. Exchanges have to gear up to ensure that there are firm surveillance processes besides the basic KYC norms being adhered to. As this market has been through various cycles involving withdrawal of contracts, getting dabba traders on board will be beneficial as the price discovery process would get sharper considering that a large number of these players are in the physical market and are better able to take positions in the market. This could be a turning point for the commodity futures market if the story unfolds in the aforesaid manner.