India is set to launch its first tokenised corporate bond issue in September, marking a major step towards using blockchain technology for securities issuance and settlement, according to media reports. State-owned power financier REC is expected to issue the tokenised bonds as part of the pilot programme, potentially placing India alongside markets such as Europe and Hong Kong that have already experimented with blockchain-based bond issuance.
REC is expected to issue less than Rs 500 crore worth of tokenised bonds in the offering, reported Reuters quoting three sources with direct knowledge of the matter. The pilot is likely to be restricted to a select group of investors, with the names of participating investors yet to be disclosed.
The offering is expected to be unveiled at an annual financial technology event in Mumbai next month, one of the sources told Reuters.
Tokenised bonds are securities whose ownership, issuance, trading and settlement are recorded on blockchain or distributed ledger technology. The technology has the potential to enable significantly faster settlement of transactions while reducing some of the processes involved in conventional securities settlement.
The Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI) are working together on the initiative as India explores the use of distributed ledger technology in its financial markets, the sources said.
The pilot will also integrate India's central bank digital currency (CBDC). According to the report quoting a source, investors will use the digital rupee to purchase the tokenised bonds. Investors participating in the pilot will need access to two separate digital accounts: a wholesale CBDC wallet provided by a bank and a new electronic securities wallet.
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Indian securities depositories are developing the electronic securities wallet, described as a first-of-its-kind system called "DEMAT 2.0". The wallet will record investors' bond holdings using distributed ledger technology. "Subsequent trades can take place only between participants that hold both compatible CBDC and securities wallets," one source told Reuters.
The framework could therefore create a closed digital ecosystem in which both payment and securities ownership are recorded and transferred through compatible digital infrastructure.
The tokenised bonds are expected to have an initial three-month lock-in period. Stock exchanges are also expected to develop a secondary market for the securities by December, according to the report. Unlike conventional bonds, the tokenised securities will not be traded through the existing electronic book provider platform, the sources said.
The pilot is intended to test whether blockchain-based infrastructure can improve the efficiency of bond issuance and settlement. Instant or near-instant settlement could potentially reduce settlement risks and streamline transactions by allowing the transfer of securities and payment to occur through integrated digital systems.
The initiative also represents an expansion of India's experiments with digital financial infrastructure. The use of the CBDC alongside a distributed-ledger-based securities wallet could allow regulators and market participants to test how digital currency and tokenised securities can operate together.
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