Demat 2.0: Tokenising Corporate Bonds
What is Demat 2.0?
By Press Release dated 10th September 2026, the Securities and Exchange Board of India (SEBI) announced the successful launch of “Demat 2.0”, a pilot project for the tokenisation of corporate bonds. The initiative seeks to test the issuance, holding, trading and settlement of corporate bonds using Distributed Ledger Technology (DLT) and the Reserve Bank of India’s Central Bank Digital Currency (CBDC), the digital rupee (e₹).
It is worth noting that the tokenisation does not presently create a new category of security. It remains classified as a security under the Securities Contracts (Regulation) Act, 1956 (SCRA). The principal change lies with respect to the manner in which ownership, transfer and settlement are recorded and executed. SEBI clarifies that this technological change does not alter the legal character, rights, obligations, or regulatory treatment of the corporate bond. The ISIN, issuer obligations, coupon, maturity, covenants, rating, security and investor rights remain the same as a conventional dematerialised bond while the key terms of the bond are encoded into the token through a smart contract.
From Dematerialisation to Tokenisation
Tokenisation may be viewed as a further technological development in the evolution of dematerialisation. In India, holding and transferring securities through depositories is carried out under the Depositories Act, 1996. The shift towards dematerialised securities was an attempt to eliminate risks and difficulties associated with physical securities and make the securities market more efficient.
The introduction of the DLT is a further technological development in the manner in which securities are recorded and transferred. Unlike the conventional depository system, where records are maintained through centralised databases, the corporate bond is issued as a native digital token on a private, permissioned DLT network. The token itself represents the corporate bond.
Atomic Settlement
The payment in this system is using the CBDC (e₹). The tokenized corporate bond and the payment are settled simultaneously through the atomic Delivery-versus-Payment (DvP). That is, the transfers occur as a single linked transaction where the transfer of the bond takes place only against corresponding payment. This method essentially helps in reducing the settlement risk between the parties thereby increasing its efficiency.
How is Demat 2.0 being rolled out?
Demat 2.0 is being introduced as a pilot under SEBI’s Regulatory Sandbox and is proposed to be rolled out in three stages.
Stage I involves issuing the corporate bonds through the existing Electronic Bidding Platform (EBP) of stock exchanges with servicing of the bonds on the DLT. Expected participation is limited to institutional investors.
Stage II involves introducing secondary market trading extending participation to retail participants. A peer-to-peer or demat-to-demat transfer may be made available in order to provide an interim exit mechanism before secondary market trading is introduced.
Stage III involves extension of the project to Credit Rating Agencies, depository participants and other regulated entities and to other financial instruments.
Prior Use of Tokenisation and DLT
The concept of tokenization is not new. Pilot programs have been carried out across the globe. In India, the use of DLT in the securities market also predates Demat 2.0. In 2022, SEBI had introduced a DLT-based system for ‘security and covenant monitoring’ of non-convertible securities. Demat 2.0 represents a further application of DLT by using it for the issuance, holding, trading and settlement of tokenised corporate bonds. According to SEBI, the uniqueness of this pilot lies in the fact that such tokenised bonds are issued natively on a distributed ledger while the record of ownership is maintained by the country’s statutory depositories and the funds leg is settled through CBDC within the existing legal framework.
Expected Advantages
Some of the advantages that are expected out of this system includes
- Reduction in time required for settlement
- Reduction in cost since processes are automated
- Risk associated with settling payments reduces because of atomic settlement
- Transactions can be audited and traced more conveniently.
- Increased confidentiality due to the usage of the permissioned network
Conclusion
Demat 2.0 represents a technological development within the existing legal and regulatory framework governing corporate bonds in India. The tokenisation does not alter the legal character of the security, the rights of investors, or the obligations of issuers. Instead, DLT and CBDC are being integrated into the existing securities infrastructure to facilitate the issuance, transfer and settlement of corporate bonds. The pilot will therefore be significant in determining whether tokenised securities can be adopted on a wider scale while continuing to operate within the existing framework of securities regulation and investor protection.
