Sebi’s Demat 2.0 lays groundwork for tokenising more regulated financial assets

Capital markets regulator Securities and Exchange Board of India (Sebi) is testing whether distributed ledger technology (DLT) can become the next layer of infrastructure for the corporate bond market, with its Demat 2.0 pilot combining tokenised securities with the Reserve Bank of India’s wholesale digital rupee.

The initiative does not create a new type of bond. Instead, it changes how an existing corporate bond is issued, recorded, transferred and settled, potentially providing a template for tokenising other regulated financial assets in the future.

What changes under Demat 2.0?

Under the pilot, corporate bonds are issued as native digital tokens on a private, permissioned DLT network operated by depositories. The bonds retain their existing legal character, including their ISIN, coupon, maturity, rating, covenants and investor rights.

Investors also do not need a separate demat account. Their existing account can be linked to a CBDC wallet, while depositories will manage the private cryptographic keys.

The pilot connects the tokenised securities leg with the payment leg through the wholesale digital rupee, enabling atomic Delivery-versus-Payment (DvP). In effect, the securities and money are designed to change hands simultaneously, reducing the settlement gap and associated counterparty exposure.

MUST READ: Closing Auction Session here to stay, says Sebi chairman Pandey

“Demat 2.0 is best understood as new infrastructure for the corporate bond market. By issuing bonds as tokens on a distributed ledger and settling them against the wholesale digital rupee in a single simultaneous step, the regulators are eliminating the gap between the security and the cash leg - settlement becoming real-time, programmable and far less error-prone, with smart contracts capable of automating coupons and redemptions over time,” said Nishchay Nath, Founder & CEO, BondScanner.

Smart contracts could automate bond servicing

Another potential change is the automation of corporate actions. The bond’s terms can be encoded into smart contracts, allowing scheduled coupon payments, redemption and other actions to be triggered based on holdings and predetermined conditions.

Nath, however, said the pilot remains at an early stage. “What’s notable is how carefully it has been structured: the underlying instrument, its rating, its trustee and its disclosure obligations are all unchanged. However, the caveat is that this remains a phased pilot: issuance-led and institutional today. What will matter is secondary-market depth and the carefully sequenced path to retail participation.”

ALSO READ: MSCI India rebalancing went well under CAS, says SEBI chief: Report

The bigger test is market liquidity

The pilot is being rolled out in stages, with secondary-market trading and wider retail participation planned for a subsequent phase. That stage could determine whether tokenisation moves beyond an infrastructure experiment.

“The launch of Demat 2.0 is a significant development for the financial markets because the country is applying its Digital Public Infrastructure playbook, on which banks, exchanges and depositories operate, to other asset classes,” said Prateek Gupta, Head of Business, Mudrex.

Gupta said the ₹1,025 crore pilot remains small compared with the $620 billion corporate bond market, making it too early to call it a market transformation. He said secondary-market liquidity, broader participation and programmable corporate actions would determine the initiative’s longer-term significance.

DO READ: Barrier-free tolling by Feb-March 2027, says Union Minister Nitin Gadkari

Ashish Singhal, Co-founder, CoinSwitch, said the pilot could provide a blueprint for the tokenisation of regulated financial assets. “SEBI’s Demat 2.0 pilot represents a significant evolution in the architecture of India’s capital markets. Its importance lies not merely in tokenising corporate bonds, but in creating a programmable and interoperable framework for issuance, ownership, settlement and asset servicing.”

Singhal said linking tokenised securities with the RBI’s wholesale CBDC could enable atomic settlement and reduce settlement risk while integrating DLT within a regulated framework.

MUST SEE: RBI’s record forex deposit drive to generate additional income, says Governor Sanjay Malhotra