Demat 2.0 moves bond settlement into central bank money and leaves the bond as it was
Demat 2.0 keeps the bond, the depositories and the trading venues, and changes two things: the cash leg moves into wholesale CBDC and settles at the same moment as the bond, and coupon and redemption payments run from the ledger. SEBI claims gains in settlement speed and servicing; BIS research points to costs in prefunded liquidity.
- Problem
- India's bonds have been electronic in depositories since 1996. What does issuing them as tokens on a depository-owned ledger add, and what does it leave unchanged?
Demat 2.0 does not create a new kind of bond. The Securities and Exchange Board of India (SEBI) says the tokenised bond keeps its ISIN, rating, covenants and investor rights, and that the depository remains the legal record of who owns it (FAQ, Q2 and Q16). What changes is where the cash moves and when. The money leg moves out of the banking system’s settlement channels and into the Reserve Bank of India’s (RBI) wholesale central bank digital currency (CBDC), and it settles in the same instant as the bond.
The problem
India dematerialised its securities under the Depositories Act, 1996. Since then, a bond has been an entry in a depository’s database, not a paper certificate. So the question for an Indian issuer, investor or regulator is narrower than it is in markets where tokenisation replaces paper: what does a second generation of electronic record add?
SEBI’s answer, in its press release of 10 September 2026, is about time and manual work. Issuers get their money on the day of bidding instead of two to three days later. Investors who sell in the secondary market get paid immediately instead of in two to three days. Coupons and redemptions pay out automatically on the due date. SEBI also says settlement risk is eliminated.
The pilot launched with three issues worth ₹1,025 crore in total: REC (₹500 crore, 18 investors, 7 September 2026), L&T (₹500 crore, 4 investors, 9 September) and IIFL (₹25 crore, 1 investor, 9 September). The pilot entry tracks it against SEBI’s stated stages.
How it works
Four terms first. A distributed ledger is a record of holdings that several institutions keep identical copies of, updating them together. A token is an entry on that ledger that represents one unit of an asset and can move between accounts under rules written into the ledger. A smart contract is a program on the ledger that carries out those rules, such as paying a coupon on a date. Delivery versus payment (DvP) means the security moves only if the payment moves.
Follow one issue, as SEBI describes it.
1. Bidding. The issuer runs its placement on a stock exchange’s Electronic Bidding Platform, as it does today. Bidding, allotment rules and timelines do not change. The depository issues the ISIN in the usual way and flags it as a tokenised pilot ISIN (FAQ, Q4).
2. Accounts. Each investor needs two things. The first is a “Demat 2.0 account”, which is an extension of the investor’s existing demat account, not a new one, and uses the existing KYC. The second is a wholesale CBDC wallet opened with the investor’s own bank under the RBI’s e₹ pilot. The depositories hold the private keys, the cryptographic credentials that authorise transfers, on the investor’s behalf (Q6 to Q8). The issuer needs only a CBDC wallet linked to its bank account (Q5).
3. Allotment and settlement. On allotment, the depository credits the bond tokens to the allottees’ Demat 2.0 accounts and the issue proceeds reach the issuer’s CBDC wallet (Q4). The ledger, run by the depositories and stock exchanges with technology support from NPCI, connects to the RBI’s wholesale CBDC through the RBI’s Unified Markets Interface (UMI). The bond leg and the CBDC leg are linked so that either both settle or neither does (Q9, Q20). SEBI says the issuer receives funds on the day of bidding.
4. Servicing. The bond’s coupon rate, payment dates, day-count convention and redemption terms are written into a smart contract (Q3). On each due date the contract reads the holders recorded on the ledger at the record date and pays e₹ to their CBDC wallets (Q12). Today, according to SEBI, the issuer or its registrar has to obtain the list of holders from the depositories, compute what each is owed, and send each payment through the banking channel (press release).
5. Selling. Secondary trading is for Stage II. Until then an investor can exit through a depository-to-depository transfer on request, with the payment made outside the atomic settlement, in CBDC or through banks (Q19). When Stage II arrives, trades will still be struck on the exchanges’ existing request-for-quote (RFQ) and OTC reporting platforms. Only settlement moves to the ledger (Q11).
| Step | Demat today | Demat 2.0 pilot |
|---|---|---|
| Issuance venue | Exchange bidding platform | Same |
| Ownership record | Depository database | Depository-owned ledger; the depository remains the legal record |
| Cash leg | Bank payment channels; RFQ trades settle through clearing corporations, in practice over RTGS (SEBI circular, 9 January 2023, para 4) | Wholesale CBDC, linked atomically to the bond leg |
| Issuer receives funds | Two to three days after bidding (SEBI) | Day of bidding (SEBI) |
| Coupons and redemption | Registrar computes and pays through banks | Smart contract pays CBDC wallets |
| Secondary trading | RFQ and OTC platforms | Same platforms, from Stage II |
Why it is built this way
The design keeps every institution that already runs India’s bond market in its current role. The exchanges still run issuance and trading. The depositories still hold the legal record and now also own the ledger. SEBI’s FAQ describes the pilot as technology-neutral and says the regulatory framework for the bond is unchanged (Q13), and SEBI’s release frames this as the point: the bonds “trade in the same manner as bonds held in demat form, so the market is not fragmented”.
SEBI contrasts this with tokenisation elsewhere, which it says “has largely been undertaken by individual issuers on separate platforms”, naming Project Helvetia III, Hong Kong’s Project Evergreen, US Treasury bonds and issues by BlackRock, J.P. Morgan and AIIB. It claims India is the first country to issue corporate bonds natively on a ledger with the statutory depositories holding the ownership record and the cash leg in CBDC (press release).
The choice of central bank money for the cash leg follows from the aim of atomic settlement. For the bond and the payment to move as one transaction, the ledger has to be able to move the money as well as the bond. The RBI’s wholesale CBDC, which banks have used since November 2022 to settle trades in government securities (pilot entry), is the settlement asset the RBI controls and can connect through UMI.
Each institution keeps or extends its role. The depositories and exchanges keep issuance, trading and the ownership record. The RBI plans more tokenisation pilots with more participants in 2026-27 (annual report 2025-26). Issuers and investors are asked to invest in no new technology (Q18).
SEBI’s stated reason is the one above: a single bond market rather than a separate platform for each issuer. The design has a further advantage. Because the ledger sits inside the depositories, which remain the legal record, the Depositories Act, 1996 stays untouched (FAQ, Q16), and the regulatory sandbox only has to relax rules for a limited scope and period (Q23).
In our markets
India, Hong Kong and Singapore have made different choices about where tokenised bonds live.
In India, both the tokenised certificates of deposit on UMI (pilot entry) and Demat 2.0 sit inside market infrastructure run or overseen by the RBI and SEBI. The ledger is private and permissioned (Q20), and SEBI has not named the ledger software.
In Hong Kong, the government issued a HK$800 million tokenised green bond in 2023, settled through the HKMA’s Central Moneymarkets Unit on a private platform, and moved later issues to another private platform (pilot entry). The SFC now permits retail secondary trading of tokenised authorised funds on licensed platforms (Wire).
In Singapore, DBS has tokenised structured notes on Ethereum mainnet for accredited and institutional investors (pilot entry), and MAS has proposed lower capital treatment for bank holdings of tokens on permissionless chains that meet requirements on governance, technology, settlement finality and AML (Wire).
On the ledger, India’s regulators kept tokenised bonds inside the existing depositories, Hong Kong’s government issues have used private platforms, and Singapore is making room for public chains with controls.
The case against
Three objections come from the research on securities settlement.
Speed may not need a new ledger. A BIS Quarterly Review article from March 2020 by Bech, Hancock, Rice and Wadsworth argues that the length of settlement cycles reflects back-office processes, legal arrangements and liquidity management rather than technology. On that view, the two-to-three-day wait for issuers could be shortened within the existing clearing corporations and RTGS. The evidence that would settle this is a comparison of Demat 2.0 against an accelerated conventional cycle, which the pilot does not run.
Atomic settlement costs liquidity. The same article notes that tokenised settlement tends toward trade-by-trade gross settlement, because netting is harder on a decentralised ledger, and that settling trades individually generally requires more liquidity. A buyer in Demat 2.0 has to hold e₹ in a wallet before the trade, rather than paying a net amount at the end of a cycle. The authors add that if each tokenised ledger has its own cash token, the need to hold cash on several ledgers can raise liquidity needs across the system. Stage I covers primary issuance, where each investor pays once. Stage II, with secondary trading and retail investors, is where the liquidity cost would show.
The ledger duplicates the depository. SEBI says the depository remains the authoritative record and the ledger is “the form in which the record is maintained” for the pilot (Q16). The depositories hold investors’ keys (Q7), and freezes and attachments on a demat account apply to the tokenised holding (Q17). The ledger is controlled by the same institutions that run the database it would replace. A critic would ask what the ledger does that a depository database connected to CBDC could not. SEBI’s answer is that the shared ledger lets all authorised institutions see bondholder details at once and removes reconciliation between them (press release). Whether that saving is large enough will show in the cost data, which SEBI has not published.
Retail access raises a separate question. Wholesale CBDC is used by banks and institutions to settle with each other, and the retail e₹ is a separate RBI pilot for individuals and merchants (pilot entry). SEBI’s release says Demat 2.0 investors need a wholesale CBDC wallet with a participating bank (press release), yet Stage II is meant to extend access to retail participants (FAQ, Q22). How that gap closes depends on how the pilot progresses.
On an aggressive path, a bank or broker would hold wholesale CBDC and settle on behalf of its retail clients, so retail investors reach the ledger through an intermediary rather than a wallet of their own. No SEBI or RBI document describes this arrangement yet.
On a conservative path, the retail stage is simply not designed yet. SEBI gives no date for Stage II, and the three Stage I issues went to 18, 4 and 1 investors (press release). The SEBI circular or sandbox approval for Stage II, naming the settlement asset for retail investors, will show which path the pilot is on.
For Ethereum
Demat 2.0 runs on a private, permissioned ledger owned by India’s depositories, and public chains play no part. For issuers or investors hoping to reach Indian corporate bonds through public-chain wallets, nothing in the SEBI or RBI documents points that way.
The pilot’s own plan stays within regulated institutions. The ledger is private and permissioned, its first nodes are run by the depositories and stock exchanges, and Stage III considers extending nodes only to regulated entities such as credit rating agencies and depository participants (FAQ, Q20 and Q22). A node is an institution that runs a copy of the ledger and takes part in updating it.
If a permissionless chain were ever involved, Singapore shows the form it would take. MAS has proposed that banks may give tokens on permissionless blockchains the lower capital treatment when they meet requirements on governance, technology, settlement finality and anti-money laundering, with a safe harbour for designs where the issuer can freeze or correct transactions and whitelist holders (Wire). The chain is public, but the token carries the issuer’s controls, so only approved holders can own it and the issuer can reverse an error. That is the model under which a regulated bond can sit on a public chain, and it is not the one India has chosen for Demat 2.0.
What to watch
- The start of Stage II: secondary trades settled atomically on the existing RFQ platforms, and the admission of retail investors. SEBI has given no date.
- Any SEBI or RBI data on settlement times, issuance costs and investor numbers from Stage I, which would test the claimed savings.
- The pilot’s exit from the regulatory sandbox, which SEBI says will come before a broader framework is considered (Q23).
- New instruments and node operators in Stage III.