Demat 2.0 explained: Why it matters for bond market investors
In an innovative move, Sebi has rolled out Demat 2.0, a pilot scheme aimed at tokenising corporate bonds. This initiative facilitates rapid settlement and instant fund retrieval for investors. It automates interest and redemption payments through smart contracts, while atomic settlement mitigates risks by coordinating the release of bonds and payments seamlessly. Future developments will broaden…
Demat 2.0, a pilot project by the Securities and Exchange Board of India (Sebi) for tokenised corporate bonds, has been launched successfully. This new market infrastructure aims to revolutionize bond trading and settlement in India by enabling faster settlement, quicker access to secondary-market funds, and automated processing of interest and redemption payments.
Demat 2.0 creates a digital token representation of a bond on a distributed ledger, which is shared electronically across market infrastructure institutions using distributed ledger technology (DLT). The ledger is owned by the depositories. The system is connected to the RBI's wholesale central bank digital currency (CBDC) or e-rupee through the Unified Market Interface, facilitating atomic settlement where the bond and money move instantaneously.
For investors, the key benefits are receiving funds immediately from secondary-market transactions, simultaneous settlement of bonds and money, lower settlement risk, automated interest and redemption payments, and direct e-rupee payments to CBDC wallets on due dates. Currently, the focus of the pilot is on issuances, with future phases expected to include secondary-market buying and selling and retail investor access.
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