The Bond and the Investor
When a company issues a bond, investors lend it money on agreed terms. These terms determine the interest payable, the repayment date and the investors’ rights. Investors hold their bonds electronically in demat accounts. Depositories keep electronic records showing who owns securities, including bonds and shares. The company and institutions handling its payments use these records to identify bondholders and calculate what each should receive. Throughout the bond’s life, these institutions therefore exchange information and make payments.
On September 10, 2026, the Securities and Exchange Board of India (“SEBI“) announced Demat 2.0, a pilot testing a connected digital system for these activities. By that date, REC Limited, Larsen & Toubro Limited and IIFL had issued tokenised bonds totalling
?1,025 crore. The pilot links ownership records with bond transfers and scheduled payments, and existing regulated institutions continue to perform their roles.
Recording the Bond as a Token
Within this system, the company issues its bond as a digital token. SEBI explains that the token is the bond itself. It carries the issue’s International Securities Identification Number (“ISIN“), the code identifying the security. The company continues to owe the agreed interest and principal, and investors retain the rights attached to that bond. Tokenisation gives this financial relationship a digital form that computer programs can use to process transactions and payments.
These tokens exist on a shared electronic record, or ledger, which the depositories own. Authorised institutions keep matching copies across connected computers using distributed ledger technology. Each approved transaction updates the record and leaves a trace of the transfer. Access requires permission. Depositories and stock exchanges initially operate these computers, known as nodes. The National Payments Corporation of India provides technology and implementation support. The shared record therefore remains within regulated market infrastructure.
The bond’s payment terms also enter a computer program called a smart contract. Using the shared record, it can calculate interest from the agreed rate and rules for counting days, identify eligible holders on the specified record date, and trigger payment when due. It can also support repayment at maturity and other scheduled events. Institutions can therefore use common information throughout the bond’s life.
Issuing the Bond and Completing Payment
To issue a bond through this system, a company invites bids through a stock exchange’s existing Electronic Bidding Platform. The depository assigns an ISIN through the existing process and marks it for the pilot. After allotment, it credits the bonds to the investor’s Demat
2.0 facility within the existing demat account. Existing Know Your Client (“KYC“) records support registration. The investor consents to linking that account with a digital rupee wallet supplied by a participating bank.
The wallet holds digital money that the Reserve Bank of India (“RBI“) issues. This Central Bank Digital Currency (“CBDC“) is a liability of the RBI, so the holder’s claim is against the central bank. The pilot uses its wholesale form, designed for financial market transactions. The RBI’s Unified Markets Interface links the bond transfer with payment. Both transfers complete together, and each depends on the other succeeding. This process, called atomic delivery versus payment, protects each participant against delivering the bond or money alone.
The issuer then receives the money raised in its wallet. SEBI describes same-day receipt following bidding, compared with the usual two to three days previously involved. Earlier receipt can help companies plan their funding. As interest and repayment dates arrive, smart contracts can use recorded holdings to trigger payments to investors’ wallets. The issuer remains responsible for providing the money due, and investors continue to assess its ability to pay. Reducing repeated instructions and checks between institutions may lower the cost of administering the bond.
The Legal Framework for the Pilot
SEBI’s September 2026 explanatory materials place these issuance and payment arrangements within its Regulatory Sandbox. A sandbox allows controlled testing under regulatory supervision, within specified limits. SEBI’s Revised Framework for Regulatory Sandbox, dated June 14, 2021, provides the broader framework. Any specific relaxation for this pilot applies within a defined scope and period. The regulator can consider a broader framework using evidence of how these arrangements work in practice.
During this testing, the tokenised bond remains a security under the Securities Contracts (Regulation) Act, 1956. The Securities and Exchange Board of India (Issue and Listing of Non-Convertible Securities) Regulations, 2021 and other applicable SEBI rules continue to govern it. Existing requirements cover credit ratings, debenture trustees, listing, disclosures, valuation and investor protection. Debenture trustees act for bondholders under the applicable law and governing trust documents. Investors retain the bond’s interest terms, maturity, contractual protections and any security supporting repayment. Institutional investors continue to follow the applicable investment rules when purchasing the bond.
For these holdings, the Depositories Act, 1996 treats the depository as registered owner to carry out transfers. The investor, as beneficial owner, retains the security’s rights, benefits and liabilities. SEBI’s pilot preserves these roles and the depository’s authority over the ownership record. Legal freezes and attachment orders also extend to linked tokenised holdings. The shared ledger therefore operates within existing rules for ownership and control.
SEBI supervises these market institutions and the securities framework. The RBI provides the digital currency and the interface linking assets with payment. Its earlier wholesale CBDC trials covered government securities, interbank lending and tokenised certificates of deposit. The RBI Governor’s September 10, 2026 address placed corporate bonds within this continuing work. The joint initiative applies both regulators’ responsibilities to connected securities and payment systems.
Applying the Technology in Practice
Calculating interest within these systems requires rates, dates and payment rules. Issuers and their advisers therefore need to check that the bond documents, bidding information and computer instructions reflect the same agreed terms. Missed payments, changes to terms and events requiring judgment also need defined procedures and authorised decision makers. This coordination links the company’s legal promises with the system’s instructions and helps identify who is responsible when an exception arises.
Depositories also manage private keys, the digital credentials for tokenised holdings, on investors’ behalf. Investors continue to view their holdings through existing depository services. They can use this infrastructure with existing banking and demat arrangements. Because institutions handle these functions, participants can focus their checks on access permissions, wallet links, confidentiality and safeguards for holdings. Clear procedures for complying with legal orders and protecting records support the depository’s continuing custody of the holdings.
Alongside these safeguards, the pilot tests cybersecurity, the system’s ability to handle greater volumes, recovery after disruption and records that auditors can examine. It also examines settlement finality, including when the law treats a completed transfer as final. The institutions operating the system need clear responsibilities for approving entries, resolving errors, suspending activity and restoring service. These operational arrangements give practical effect to the legal rights that the records support.
The Next Stages of Market Participation
The first stage applies these arrangements to issuance and scheduled payments, with institutional participation initially expected. The proposed second stage would allow subsequent trading and retail participation through existing market channels. Request for Quote platforms would allow participants to seek bond prices for trading. Exchanges’ existing reporting platforms would record trades agreed outside the exchange. Using these channels can support common pricing across conventional and tokenised bonds.
Before secondary trading begins, depositories may enable transfers between investors’ demat accounts on request. Participants may complete payment through CBDC or banking channels outside the atomic settlement process. This offers a possible exit during this period, subject to the pilot’s arrangements. A proposed third stage may bring credit rating agencies, depository participants and other regulated entities onto the network, and consider additional instruments and scheduled events.
For individual investors to participate later, the arrangements would need to address wallet access, disclosures, complaints and customer support. Adding instruments would require examining ownership, transfer restrictions, claims over assets and payment terms. Evidence from actual transactions can guide both regulators’ decisions on wider adoption. Reliable payments, clear responsibilities and systems that work together will determine how far the pilot’s operating model can extend across India’s securities markets.