At the Global Fintech Fest in Mumbai, the Securities and Exchange Board of India (SEBI) and Reserve Bank of India (RBI) announced the launch of Demat 2.0, a pilot project on tokenisation of corporate bonds. RBI Governor Shri. Sanjay Malhotra and SEBI Chairman Shri Tuhin Kanta Pandey jointly made this announcement.
The initiative is being led by various stakeholders, including depositories like the Central Depository Services Ltd. and the National Securities Limited, exchanges like Bombay Stock Exchange and the National Stock Exchange, banks like HDFC Bank and ICICI Bank and the National Payments Corporation of India.
Demat 2.0 refers to a new market infrastructure. It was developed to test a new way of issuing, holding, trading and settling corporate bonds. The bond is created as a digital token on a distributed ledger, which is a shared electronic record maintained simultaneously by market infrastructure institutions using Distributed Ledger Technology (DLT). This ledger is owned by the depositories. Demat 2.0 is linked to Reserve Bank of India’s wholesale Central Bank Digital Currency, known as e₹, through the Unified Market Interface of the Central Bank.
This connection allows for atomic settlement. This means that both the bond and the money transfer occur instantaneously. As a result, the technology enhances efficiency of transactions in securities market. Asset servicing, including interest payments and redemption, can be automated through smart contracts, i.e., self-executing instructions written into the ledger.
Currently, these processes require the issuer or their registrar to obtain a list of bondholders from depositories, calculate the amounts due to each and route payments separately through the banking system. However, on the shared ledger, the details of bondholders are visible to all authorized institutions simultaneously and payments in e₹ are delivered to the bondholders' CBDC wallets on due date.
The advantages of Demat 2.0 can be understood with the help of the following points:
Demat 2.0 lets the issuer receive funds on the same day as bidding. This process generally took 2-3 days after bidding.
Due to automation of manual processes, it is anticipated that the cost of issuance and servicing will reduce.
Because of atomic settlement, the settlement risk is eliminated.
The investors receive the funds immediately in secondary market. Earlier, this would take 2-3 days. After receiving the funds, the investors can then deploy them somewhere else.
Interest and redemption payments are credited in e₹ to bondholders' CBDC wallets on due date. These payments are triggered automatically by a smart contract.
For investors, participation is pretty straightforward. Tokenized bonds are held in the investor’s existing demat account. This means that there is no need to open a separate account or complete additional KYC procedures. Investors must enable Demat 2.0 with their depository and maintain a wholesale CBDC (e₹) wallet with a participating bank to settle the funds.
Source:- SEBI
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