India’s Bond Market Goes High Tech: SEBI Bets On Digital Ledgers For Instant Settlements

The capital markets regulator is seeking to use blockchain-inspired technology to modernise the corporate bond market, which continues to grapple with settlement issues, disjoined ownership records and limited secondary market liquidity. With the transition to a digital ledger based framework, SEBI aims to establish a more efficient, trustworthy and investor friendly bond market, particularly for institutional debt investors and treasuries.

Digital Ledger Technology (DLT) can Revolutionize Bonds.

A tokenised corporate bond system involves each bond being issued as a digital token on a public, immutable ledger. This can enable delivery versus payment to be completed in near real time, minimize reconciliation delays between intermediaries and provide regulators and participants with a single source of truth for ownership and transfers.

The proposed 6–9 month pilot period indicates that SEBI is taking the next step from concept to implementation, which will likely begin with a limited number of issuers, investors and platforms. Successful tokenisation of settlement would reduce settlement times, release collateral more quickly and ultimately enable other fixed income and money market products to be similarly tokenised.

Tokenised Bond Highlights

• The chief of the Securities and Exchange Board of India (SEBI) has stated that distributed ledger (DLT) technology can be used to facilitate instant settlement of corporate bonds.
• Regulator to roll out a pilot on tokenisation of corporate bonds in the next 6-9 months
• Digital tokens on a shared ledger that are expected to reduce settlement risk and operational friction.

A successful pilot could pave the way for wider market infrastructure based on blockchain in debt markets in India.If the pilot is successful, it could lead to wider market infrastructure based on blockchain in debt markets in India.

Sources: SEBI, NIS, Bloomberg, Economic Times