SEBI Launches Demat 2.0 Pilot for Tokenised Corporate Bonds

India's Securities and Exchange Board of India launched its Demat 2.0 pilot for tokenised corporate bonds on Sept. 10, moving the issuance, holding, trading and settlement of selected corporate bonds onto distributed-ledger infrastructure. SEBI announced the launch in a Sept. 10 press release and published a detailed FAQ for the pilot.

The pilot does not create a new security or asset class. Under SEBI's description, the corporate bond remains a security governed by the existing regulatory framework. Its legal character, issuer obligations, coupon, maturity, covenants, credit rating, security and investor rights stay the same. The change is the record-keeping and settlement technology: the bond is issued as a native digital token on a private, permissioned distributed ledger owned by the depositories, and the token is the bond itself, according to the SEBI FAQ.

CoinDesk reported that state-owned power-sector lender REC raised Rs. 500 crore through the system, Larsen & Toubro raised a further Rs. 500 crore, and IIFL Finance raised Rs. 25 crore. The three reported transactions total Rs. 1,025 crore. The publication described the pilot as the start of tokenisation in India's roughly $620 billion corporate-bond market, while SEBI's materials frame it as a controlled test under the regulator's sandbox rather than a market-wide conversion of corporate debt. CoinDesk's report says the instruments keep their conventional interest rates, maturity dates and investor rights.

The operating model puts established market institutions in the middle of the system. Depositories remain the authoritative record keepers of beneficial ownership under the Depositories Act, SEBI says. The distributed ledger is the form in which that record is maintained for the pilot; it does not displace the depository's statutory role. The FAQ says the infrastructure is being developed and operated by market infrastructure institutions, with technology and implementation support from NPCI. Initially, the depositories and stock exchanges will operate the nodes, with controlled access for other regulated entities possible as the pilot progresses.

The bond's terms remain the bond's terms

SEBI's FAQ draws a sharp boundary between a tokenised representation and a new investment product. A tokenised corporate bond retains the same ISIN as its corresponding bond issue. The issuer's duties do not change because the ownership record is maintained on a distributed ledger, and the applicable requirements for listing, disclosures, debenture trustees, valuation, classification, investor protection and investment eligibility continue to apply.

That means tokenisation does not produce a separate credit-rating requirement. The rating still addresses the issuer's credit risk and its obligations. Nor does tokenisation, by itself, change whether an institution may invest. SEBI says eligibility continues to turn on the security's characteristics, including its status as a security, listing, rating, issuer and dematerialised form, rather than the database technology used to maintain its ownership record. A conventional dematerialised bond that qualifies as a permissible investment would therefore have a corresponding tokenised form under the pilot, subject to the applicable rules, according to the FAQ.

The pilot's smart contract carries the bond's key terms, including the coupon rate, payment dates, day-count convention and redemption terms. That coding is meant to permit scheduled servicing against holdings recorded on the ledger at the relevant record date. SEBI says coupon payments, redemption and other scheduled corporate actions can be executed automatically through the smart contract, reducing the need for repeated manual instructions and reconciliation between institutions. The FAQ presents this as an objective of the pilot, not as a claim that every exception in bond servicing has been eliminated.

SEBI also preserves existing legal and regulatory controls over the holdings. A freeze, attachment or direction that applies to a demat account or the relevant ISIN and token holding will also apply to the linked tokenised holding. The FAQ does not describe the token as an independently controlled bearer instrument. The depository remains responsible for the ownership record, and the existing framework continues to govern the underlying bond.

The permissioned design is central to that approach. The FAQ states that the network is private and permissioned, and that depositories will hold and manage the private keys for investors. Investors do not need to acquire specialised ledger infrastructure or manage cryptographic keys themselves. From their perspective, SEBI says, the tokenised holding remains visible through the existing depository interface and holding statement.

Issuance stays on existing market rails

Demat 2.0 does not replace the existing Electronic Bidding Platform used for corporate-bond issuance. Issuers will continue to use the stock exchanges' EBP. They obtain an ISIN from the depositories through the usual process, although the ISIN is flagged as a pilot or tokenised ISIN. Bidding, bid modification, cancellation and allotment timelines also remain unchanged, the SEBI FAQ says.

Once an allotment is made, the depository credits the tokenised securities directly to the allottees' Demat 2.0 accounts. That label does not mean an investor opens another standalone securities account. SEBI describes a Demat 2.0 account as an extension of the investor's existing demat account. Existing KYC is used, and registration occurs through the depository's existing interface by linking an eligible demat account to a CBDC wallet and giving the required consent.

The issuer does not need a Demat 2.0 account. It does need a CBDC wallet linked to its designated bank account to receive issue proceeds and, where applicable, make coupon and redemption payments. Participating investors likewise need a CBDC wallet opened with their own bank under the Reserve Bank of India's e-rupee pilot, alongside the depository-managed Demat 2.0 account. SEBI says it does not envisage separate technology infrastructure or investment by issuers or investors for the pilot.

Those details matter because the system is designed as an extension of the current dematerialised market rather than as a separate retail crypto workflow. The securities are issued and held within depository infrastructure, while the money side uses central-bank digital money. CoinDesk reported that the connection is made through the RBI's Unified Market Interface, or UMI, linking the tokenised bond ledger and the wholesale digital rupee used for settlement. The regulator's FAQ describes the funds leg as CBDC, or e-rupee, and describes how that money leg is linked to the security leg on the ledger.

Payment and delivery settle together

The core settlement feature is atomic delivery-versus-payment, often shortened to DvP. In SEBI's wording, the transfer of the bond and the transfer of funds happen as one linked transaction. If the securities transfer succeeds, the CBDC payment succeeds; if one leg fails, the other does not settle. The arrangement is intended to remove the interval in which one party has delivered securities without receiving payment, or has paid without receiving the securities.

CoinDesk described the same mechanism as a way to move the bond and the digital rupees used to buy it together, cutting settlement risk between the two sides of a trade. The distinction is operational rather than economic: the investor still buys a corporate bond and the issuer still receives the proceeds of that issue. The pilot changes how the ownership record and payment leg are coordinated. It does not change the bond's cash flows, maturity or the issuer's obligation to repay, according to the SEBI FAQ.

SEBI lists clearing, settlement finality and the roles of market infrastructure institutions among the subjects the pilot is meant to test. It also lists cyber security, scalability, resilience, auditability, regulatory controls and restrictions, smart-contract servicing and exception handling. Those are pilot objectives rather than settled outcomes. The regulator says the work is being conducted under its Regulatory Sandbox, where any specific relaxation required for the test is provided for a defined scope and period. The stated purpose is to test the architecture and operating arrangements before a broader framework is considered.

The settlement design also explains why the pilot ties a securities ledger to the RBI's digital money rather than to a private payment token. SEBI says CBDC supplies the digital money for the funds leg. CoinDesk reports that the wholesale digital rupee and UMI are the components that allow the delivery and payment legs to complete together. This retains a regulated-depository record for the security and central-bank money for payment, rather than introducing a separate open-market settlement asset.

Trading and access are planned in stages

The initial stage is limited. SEBI's proposed rollout begins with tokenised corporate-bond issuance through the EBP and asset servicing on the ledger, with participation initially expected to be institutional. Secondary-market trading and retail participation are not part of that first stage. CoinDesk likewise reported that secondary trading and eventual retail access are expected in later phases.

SEBI's second stage would enable secondary-market trading and extend access to retail participants. The regulator says it does not propose a new tokenised exchange or a segregated market segment for that purpose. Existing request-for-quote platforms and over-the-counter reporting platforms of stock exchanges would connect to the ledger infrastructure. Price discovery, order handling and reporting would remain in those existing channels, while the securities and funds settlement legs would be integrated with the tokenised infrastructure.

The FAQ sets out an interim route for a holder who wants to sell before secondary trading is enabled. A peer-to-peer or demat-to-demat transfer may be enabled on request through the depositories. In that temporary arrangement, the payment leg may occur outside the atomic settlement architecture through CBDC or banking channels. SEBI describes it as an exit mechanism during the period before secondary trading is available; it is not the same as the later integrated secondary-market settlement model.

The FAQ says the proposed third stage would consider extending nodes to credit-rating agencies, depository participants and other regulated entities. It also contemplates other instruments and a wider range of corporate actions. These are staged possibilities in a pilot, not announced availability for those participants or products. The FAQ uses conditional language for the extension of controlled access and for the scope of future phases.

For now, the confirmed record is narrower: SEBI has launched the Demat 2.0 pilot; REC, L&T and IIFL Finance are reported to have raised a combined Rs. 1,025 crore through it; the bonds retain the legal and economic terms of conventional corporate bonds; and their tokenised ownership records can settle against CBDC through a linked delivery-versus-payment process. Secondary trading and retail participation remain later-stage features in SEBI's proposed rollout, as described in the regulator's FAQ.