After a series of scams, Indian capital markets are faced with a new monsterthat of parallel exchanges. Parallel bourses are mushrooming across the country and are threatening to undermine the legal stock exchanges.

A Dabba is an operation where a `broker' invites investors to take positions for some stocks at a benchmark price (the actual BSE or NSE price) and settle the position a few days later. The trade would be settled on the date mutually agreed upon. The difference between the price at the `settlement' date and the first day is paid depending upon the rise or fall in price. There are no rules and no margins to be paid. The operator attempts to bear the counterparty risk. The return to the operator is the net gain after all positions are cleared.

The following example will make it more clear. Let us assume the NSE closing price of Satyam Computers on a Friday to be Rs. 230. The dabba broker invites bids from parties interested to `trade' in Satyam. An investor, lets name the guy Bull, thinks that Satyam is going to go up to Rs. 235 till the next Friday close, and `buys' Satyam at Rs. 230. Another investor, Bear, predicts a slide in the share value of the stock to Rs. 220 by the next Friday (the `settlement date' for the dabba broker) and short-sells Satyam. Now on the next Friday, Satyam Computers closes at the NSE at Rs. 235. The broker hence gives Rs. 5 per share to Bull and collects the same from Bear. If the stock price of Satyam slides to Rs. 220 in the ensuing week, the price difference, i.e., Rs. 10 is collected from Bull and given to Bear.

This entire process does not look very dissimilar from a wager on a horse race. There is no delivery of stocks and no proper mark-to-market margins. Sometimes, transactions are given the `stamp' of legality with the investors and brokers signing hundis and IOUs on each other's names. In the absence of these instruments, matters get even dirtier with the hiring of goondas (goons) and/or nexus with local politicians for recovery of dues.

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