Bucket trading (or bucketing) is an illegal and unethical trading practice in which a broker or trading intermediary accepts a client's order but, instead of executing it on a legitimate exchange, internally matches it against the broker's own book or another client's order — 'pocketing' (or bucketing) the trade without routing it to the exchange. The broker quotes the client a price that mirrors the exchange price but retains any profit from the spread between what the client pays and what the broker would have paid on the exchange — or simply does not execute the order at all while collecting the client's funds. Bucket shops — illegal brokerage operations conducting such trades — were prevalent in early 20th century American markets and gave rise to the term. In India, SEBI strictly prohibits bucketing under the Securities and Exchange Board of India (Stockbrokers and Sub-Brokers) Regulations and has taken enforcement action against brokers found to be internalising client orders rather than routing them through NSE or BSE. For Indian retail investors, using only SEBI-registered, exchange-authorised brokers and always verifying trade execution through official exchange contract notes (which contain exchange trade reference numbers) is the primary safeguard against bucketing practices — any broker refusing to provide exchange-stamped contract notes should be reported to SEBI's SCORES complaint portal immediately.
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