securities settlement

India’s securities regulator has launched a pilot system for tokenizing corporate bonds within its existing market infrastructure, bypassing public blockchains entirely. The move could reshape how institutional investors settle trades and receive coupon payments while remaining within established regulatory oversight.

• Three Indian companies have issued ₹1,025 crore ($116 million) in tokenized bonds since September under the Demat 2.0 pilot.
• The system enables same-day fund settlement for issuers and instant proceeds for secondary-market investors, versus the traditional two-to-three-day process.
• India plans three rollout phases: institutional bonds now, retail access and secondary trading next, then expanded asset classes and market participants.

• ₹1,025 Cr Total value of tokenized bonds issued by three companies since September launch
• ₹500 Cr Amount raised by REC Limited as first issuer on September 7
• 2-3 Days Traditional settlement period that Demat 2.0 reduces to same-day funding
• Sep 7 Date REC Limited became first issuer on the tokenized bond platform

The Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI) have opened a regulated pilot for issuing, holding, trading, and settling corporate bonds as digital tokens directly within India’s existing securities market infrastructure. The initiative, called Demat 2.0, differs fundamentally from many global tokenization experiments by avoiding standalone blockchain platforms in favor of a private, permissioned distributed ledger controlled by statutory depositories and stock exchanges. Three companies have already participated: REC Limited raised ₹500 crore from 18 investors on September 7, Larsen & Toubro matched that amount from four investors, and IIFL raised ₹25 crore from a single investor on September 9, bringing total issuance to ₹1,025 crore ($116 million).

The pilot represents a significant departure from blockchain-focused tokenization initiatives in other jurisdictions. While countries and private consortiums have explored public or hybrid blockchain networks for securities settlement, India’s regulators selected a controlled environment using their own technical infrastructure. This approach prioritizes regulatory visibility and consistency with existing market rules over technological novelty or decentralization.

Atomic Settlement Linked to Central Bank Digital Currency

The system connects tokenized bonds to the RBI’s wholesale digital rupee through its Unified Market Interface, enabling simultaneous settlement of securities and cash transfers. This atomic delivery-versus-payment model eliminates the lag period that historically occurs when one party has transferred an asset while waiting for payment confirmation from the other side. For issuers, funds arrive on the same day as bidding closes, compared with the standard two-to-three-day window in traditional corporate bond markets.

Smart contracts built into the tokenized bonds can automate coupon and redemption payments directly into investors’ central bank digital currency wallets, removing manual processing steps. Institutional investors can trade through their existing demat accounts rather than adopting separate blockchain wallet infrastructure, reducing operational friction and compliance complexity. The RBI’s integration of wholesale CBDC ensures that settlements occur in actual central bank money, not a private stablecoin or cryptocurrency.

This technical integration addresses a critical pain point in emerging market finance. In traditional corporate bond markets, settlement delays create counterparty risk and tie up capital that could otherwise be deployed. By linking tokenized securities directly to central bank money, India’s approach eliminates this friction while maintaining the central bank’s role as ultimate settlement guarantor.

Regulatory Framework Unchanged Despite Digital Format

Tokenized bonds issued under Demat 2.0 carry legal status identical to conventional bonds, with all existing rules governing credit ratings, disclosures, debenture trustees, and investor protection remaining in force. SEBI emphasized that the shift to digital tokens does not alter the regulatory requirements or investor safeguards that apply to corporate bond offerings. This continuity allows issuers and investors to participate without navigating new legal uncertainty.

The infrastructure remains private and permissioned, with nodes initially operated only by depositories and stock exchanges, ensuring the system functions as an upgrade to India’s existing financial market rather than a migration to public blockchains.

This regulatory consistency reflects Indian authorities’ cautious approach to financial technology innovation. Rather than creating parallel regulatory regimes for tokenized and traditional securities, SEBI has extended existing oversight frameworks to the new format. That strategy reduces risk that tokenization introduces regulatory arbitrage or gaps that could harm investors or destabilize markets.

Three-Phase Rollout Signals Broader Asset Tokenization Ambitions

India’s authorities have outlined a staged deployment plan reflecting confidence in the pilot’s success and appetite for expanding the model. The current phase focuses exclusively on institutional corporate bond issuance, allowing the regulator and market participants to test settlement mechanics, smart contract execution, and CBDC integration. The second phase will introduce secondary-market trading and expand participation to retail investors, broadening the investor base beyond institutions.

A third phase could onboard additional regulated financial entities and explore tokenization of other asset classes beyond corporate bonds, signaling that SEBI and the RBI view Demat 2.0 as a foundation for broader real-world asset tokenization within India’s financial system. Government securities, municipal bonds, and even equity instruments could eventually migrate to the platform if the pilot demonstrates resilience and market acceptance.

The phased approach mirrors best practices for regulated financial market innovation, prioritizing stability and risk management over rapid scaling. By starting with institutional participants, regulators reduce exposure to retail investor protection issues while gathering operational data on settlement volumes, system performance, and market behavior under stress.

SEBI and the RBI have not announced a timeline for advancing from the current institutional-issuance phase to phase two, which would introduce retail investor access and secondary trading. The success of that transition will determine whether India’s model becomes a template for other regulated markets exploring tokenization without public blockchain infrastructure, and whether additional asset classes move into pilot testing.

India’s Demat 2.0 initiative offers a contrasting model to tokenization efforts pursued through permissionless blockchains or private cryptocurrency networks. As global regulators increasingly scrutinize blockchain-based finance, India’s approach of tokenizing within existing regulatory infrastructure while preserving central bank settlement authority may prove more attractive to institutional investors and government authorities than alternatives requiring wholesale migration to decentralized systems.