SEBI’s proposed Demat 2.0[1] pilot is an important marker in India’s move towards tokenised financial market infrastructure.

At its core, the pilot is not about creating a new asset class. It is about testing how an existing, regulated instrument-corporate bonds-can be issued, held, settled and serviced as Distributed Ledger Technology- based-based tokens, with settlement through wholesale Central Bank Digital Currency (“CBDC”), while continuing to operate within the existing legal and regulatory framework.

That distinction matters. The real significance of Demat 2.0 lies in the use of technology to make familiar financial instruments more efficient by supporting holding records, transfers, settlement and asset servicing on regulated digital infrastructure. For market participants, this signals a willingness by the regulator to test tokenisation within existing market systems, including depositories, trading platforms, reporting infrastructure and settlement arrangements. If implemented at scale, it could reduce reconciliation and settlement frictions and enable more automated servicing of debt instruments.

What is Demat 2.0?

Demat 2.0 is SEBI’s initiative to bring securities on to a digital, token-based infrastructure while keeping ownership records with regulated depositories. Through the regulatory sandbox, SEBI is testing how tokenised securities can be issued, traded and settled using distributed ledger technology and digital money, without compromising investor protection, legal ownership records or regulatory oversight.

A phased rollout has begun with primary issuance and on-ledger servicing, which will be followed by secondary-market and retail participation.

What changes for Institutional Investors?

For institutional investors, tokenised bonds remain subject to the existing legal and regulatory framework. Investment eligibility is determined by the characteristics of the bond, rather than the technology used to record ownership. The pilot enables atomic settlement, under which the securities and funds legs settle simultaneously and neither settles unless both can be completed. Investors continue to use existing demat accounts and existing KYC arrangements, while depositories manage the underlying private keys on their behalf.

What about Issuers?

Demat 2.0 is expected to enhance issuance efficiency by facilitating near real-time settlement of issue proceeds through CBDC-based settlement infrastructure. This may shorten settlement timelines, provide issuers with quicker access to funds and support more efficient capital and treasury management.

The framework also seeks to streamline the post-issuance administration of debt securities by automating servicing obligations, including coupon and redemption payments, through smart contract functionality, it may reduce manual processes, reconciliation requirements and operational risk, resulting in a more efficient and seamless lifecycle for debt securities.

Why This Matters

Demat 2.0 seeks to integrate tokenised securities within existing market infrastructure, with depositories continuing as the authoritative record of ownership. Similar to Switzerland’s Project Helvetia III[1], it explores the use of tokenisation and CBDC-based settlement in a regulated environment. The pilot aims to reduce settlement friction, improve operational efficiency and streamline the servicing of debt securities through a phased implementation.

What should investors and Issuers look out for

• Implementation of CBDC-based settlement and atomic Delivery-versus-Payment (“DvP”) workflows.
• Automation of coupon, redemption and other bond servicing obligations through smart contract functionality.
• Expansion of the pilot from primary issuance to secondary-market trading.
• Broader participation by regulated market intermediaries and investors.
• Introduction of transfer mechanisms prior to full-scale secondary-market trading.

Conclusion

While still at the pilot stage, Demat 2.0 marks an important step towards integrating tokenisation within India’s regulated market infrastructure. Its evolution will be closely watched for its potential to enhance efficiency, automation and settlement processes across the securities lifecycle.

Authors:

Disclaimer: 

This article is intended for informational purposes only and does not constitute a legal opinion or advice. Readers are requested to seek formal legal advice prior to acting upon any of the information provided herein. This article is not intended to address the circumstances of any particular individual or corporate body. There can be no assurance that the judicial / quasi-judicial authorities may not take a position contrary to the views mentioned herein.

[1]  Project Helvetia III – The Swiss National Bank’s pilot for wholesale CBDC | Bank for International Settlements

[1]  Successful launch of “Demat 2.0” Pilot project for Tokenised Corporate Bonds & FAQ on Corporate Bonds