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FollowingThe Securities and Exchange Commission of India launches "Demat 2.0" pilot: corporate bond tokenization and central bank digital currency atomic settlement
The Securities and Exchange Commission of India (SEBI) has launched the "Demat 2.0" pilot project. The project allows the use of distributed ledger technology to convert bonds into digital tokens during the issuance process of corporate bonds and achieve atomic settlement with the digital rupee issued by the Reserve Bank of India. Regulators elaborated on the initiative in an official Frequently Asked Questions (FAQ) released this week, describing it as the next step in modernizing India's corporate bond market.
How Demat 2.0 converts bonds into native tokens
Under this pilot program, corporate bonds will be issued in the form of native digital tokens and deployed on private, permissioned distributed ledgers operated by the Indian Depository. These tokens retain the same International Securities Identification Number (ISIN), issuer's obligations, coupons, maturity dates, contract terms, ratings and investor rights as traditional bonds, while key terms of the bonds are encoded into smart contracts.
The Securities and Exchange Commission of India emphasized that tokenization has only changed the technical means of recording ownership, has not created new asset classes, nor has it diluted the existing securities regulatory framework; depositaries remain authoritative recorders of beneficial ownership. Investors do not need to manage their own encryption keys because the depository will hold and manage the private key on their behalf.
Atomic settlement mechanism with digital rupee
Issuers continue to use existing electronic bidding platforms for issuance, but during the allocation phase, securities will be credited to a "Demat 2.0" account and issuers will receive funds in the central bank's digital currency wallet. The Securities and Exchange Commission of India said the trading legs of securities and central bank digital currencies (CBDC) are correlated on the ledger, allowing for atomic settlement-that is, either all settled or none settled-thereby eliminating counterparty risk arising during the transaction and settlement interval.
In addition, coupon payments and redemptions can also be automated through smart contracts based on ledger records, while price discovery will still occur through existing exchange platforms rather than a separate tokenization venue.
Phased promotion under the regulatory sandbox
This pilot project operates under the Securities and Exchange Commission of India's "regulatory sandbox" framework and is planned to be launched in three phases: starting with institutional issuance, followed by secondary market trading and retail channel access, and ultimately extending ledger nodes to other regulated entities. The goals listed by the Securities and Exchange Commission of India include testing atomic-level bond swaps (DVPs), smart contract-based service functions, and the resilience and auditability of infrastructure.
The release is part of a broader push to modernize securities infrastructure, echoing the tokenization roadmap of securities issuance and circulation launched in other regions such as South Korea.
