Sebi’s Demat 2.0 to debut next week with REC’s tokenised bond pilot | Capital Market News

According to people familiar with the developments, this may be a pilot launch involving the country’s first tokenised bond issuance. They added that the mechanism will use the central bank digital currency (CBDC), or digital rupee, issued by the Reserve Bank of India (RBI) for settlements, enabling faster transactions.

The information technology and operations teams of both depositories in India are jointly working on Demat 2.0, sources added. The new account will record tokenised bond or asset holdings on distributed ledger technology instead of the conventional depository ledger. This is expected to eliminate multiple layers involved in executing and settling a transaction. “Demat 2.0 — along with the first tokenised bond issuance by REC — is expected to be done next week during the Global Fintech Fest,” said a person familiar with the developments.

Emailed queries to Sebi remained unanswered until the time of going to press.

State-owned power financier REC is expected to be the first issuer of tokenised bonds. Experts explained that in the proposed REC pilot, the normal electronic book mechanism will continue to be used for the private placement and allotment of the bond. However, after allotment, the tokenised bond will be held in a securities wallet, called Demat 2.0 — an extension of the current demat system that holds securities.

While the securities will lie in Demat 2.0, the digital rupee will be held in the CBDC wallet. “The proposed system also envisages the existing trading infrastructure continuing to be used rather than creating a completely separate tokenised exchange, while coupon and redemption payments can potentially be automated through smart contracts. For institutional investors, the immediate benefits are therefore faster and more efficient settlement, lower operational friction, and better transparency across the bond lifecycle,” said Venkatakrishnan Srinivasan, founder and managing partner of Rockfort Fincap LLP. “The eventual test will be whether better infrastructure translates into greater investor participation and secondary market liquidity. Cybersecurity, operational resilience, and interoperability will also have to be carefully managed as the system scales,” he added.

Experts added that REC is suitable for the pilot as it is one of the regular issuers in the public-sector bond market and has an AAA-rated credit profile.

“Settling money and securities on connected digital rails, in central bank money, is what makes the efficiency real — through faster settlement with less counterparty and reconciliation risk. But this is a controlled pilot open to a select group of investors and not a retail product, and it comes with a lock-in and no open secondary market yet,” said Nishchay Nath, founder and chief executive officer of BondScanner.

Industry players added that before expanding to secondary trading, where participation may be wider, the pilot is starting with a familiar and high-quality issuer and a controlled group of investors, allowing the ecosystem to test the infrastructure across issuance, allotment, holding, settlement, and servicing.

“What’s interesting about this pilot isn’t the tokenisation itself — it’s that Sebi and RBI are finally letting securities settlement and payment settlement happen on the same rail. Anyone who’s worked in bond markets knows reconciliation delays are where most of the friction actually sits, not in the paperwork of issuance,” said Prabhkaran Singh Lalli, partner at Advonet.

“The part I’d watch is December. Tokenisation only means something once there’s a functioning secondary market. Until bonds can actually change hands freely, this is still just infrastructure testing, not a live market,” he added.