Sebi Launches Tokenised Bond Pilot with CBDC Settlement

The Securities and Exchange Board of India has launched a pilot program to issue corporate bonds as digital tokens. The initiative uses distributed ledger technology to record ownership and transactions. This system is designated as Demat 2.0. It does not create a new type of security. The bond retains its existing legal character and investor rights. The pilot aims to automate issuance, settlement, and interest payments.

The central bank digital currency, e₹, is integrated into the settlement process. This links the securities leg and the payment leg simultaneously. The goal is to eliminate the gap between delivery and payment. This reduces counterparty exposure during settlement. The technology changes the recording method, not the underlying asset. The bond continues to be governed by existing regulatory frameworks.

Tokenisation Preserves Legal Bond Terms

The tokenised bond keeps the same ISIN as the conventional version. Coupon rates, maturity dates, and covenants remain unchanged. These terms are encoded into a smart contract within the token. The asset remains a security under the Securities Contracts (Regulation) Act, 1956. Regulatory treatment by Sebi is identical to standard dematerialised bonds. Credit quality is determined by the issuer, not the technology.

The pilot operates on a private, permissioned network. It is run by existing depositories. This structure prevents the bond from becoming a cryptocurrency. Investor rights and obligations are legally preserved. The change is strictly technical in nature. It alters how ownership is recorded, not the contractual agreement.

Atomic Settlement Reduces Counterparty Risk

The pilot uses atomic Delivery-versus-Payment. The bond and the e₹ change hands in a single linked transaction. If the securities transfer succeeds, the payment succeeds. If one leg fails, the entire transaction reverses. This removes the settlement gap present in current systems. Counterparty exposure during the settlement window is significantly reduced.

Investors must open a CBDC wallet with their bank. The wallet links to their existing demat account. The depository infrastructure manages the connection. No new financial product is created for the investor. The process is designed to be seamless. Settlement efficiency is the primary operational benefit.

Existing Accounts Remain Fully Accessible

Investors do not need to open a new demat account. The Demat 2.0 account is an extension of the current one. Existing KYC details are reused for the pilot. Registration occurs through the standard depository interface. Tokenised holdings appear in the usual holding statement. No additional administrative burden is placed on the investor.

Investors do not manage private cryptographic keys. The depositories hold and manage these keys on their behalf. This removes the need for technical expertise from the end-user. The interface remains consistent with current market standards. The focus is on infrastructure modernization. GN auto markets/bonds: corporate bonds reports that this pilot tests the next generation of financial market infrastructure.