SEBI Launches Demat 2.0 Pilot for Tokenised Corporate Bonds on a Distributed Ledger
Background and Facts
The Securities and Exchange Board of India launched a pilot programme on September 10, 2026 under which corporate bonds are issued as digital tokens recorded on a distributed ledger. The initiative, announced at the Global Fintech Fest and styled Demat 2.0, is the first structured attempt to place Indian corporate debt on shared ledger infrastructure operated by market infrastructure institutions.
Three issuers had come to market by launch. REC Limited issued Rs. 500 crore to eighteen investors on September 7, Larsen and Toubro issued Rs. 500 crore to four investors on September 9, and IIFL issued Rs. 25 crore. The pilot therefore opened with Rs. 1,025 crore of tokenised paper outstanding.
The architecture matters more than the numbers. The token is created on an electronic ledger that the depositories own and operate, rather than on a public blockchain. Investors hold the instrument in the demat account they already have. No separate account is opened and no fresh know-your-customer process is required.
Key Legal Issue
The question a pilot of this kind raises is what a token actually is in law. Indian securities holding is built on the dematerialised model under the Depositories Act, 1996, under which the depository is the registered owner and the investor is the beneficial owner of securities held in electronic form. A tokenised bond that sits in the same demat account has to be located within that framework rather than outside it.
What SEBI Has Permitted
The pilot is a supervised experiment, not a new regulatory regime. SEBI has not, at the time of writing, issued a numbered circular creating a separate class of tokenised security, and no such circular is identified in the launch reporting. Practitioners should treat the tokenised bond as an existing debt security whose record-keeping layer has changed, and not as a novel instrument with its own legal character.
The Depository Remains the Ledger Owner
The design keeps the depositories at the centre. Because the ledger is maintained by market infrastructure institutions rather than by a decentralised network, the chain of title continues to run through regulated intermediaries. That preserves the statutory architecture of the Depositories Act, 1996 and avoids the question of how a bearer-style token would be reconciled with beneficial ownership records.
Issuance Framework Is Unchanged
The bonds in the pilot remain non-convertible securities issued and listed under the SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021, most recently amended on December 11, 2024. Disclosure obligations, the placement memorandum and the listing conditions are unaffected by the fact that the holding is represented as a token. An issuer contemplating participation is not entering a lighter regulatory regime.
Transfer Is the Unresolved Part
Phase one of the pilot covers issuance only. Secondary market transfer through request-for-quote platforms, and access for retail investors, are stated to follow in later phases. The SEBI Chairman described the mechanism for transfers as still in the sandbox. Until that is settled, the enforceable transfer of a tokenised bond continues to depend on the conventional depository transfer process rather than on any movement of the token itself.
The distinction is not academic. If the token can be moved between wallets but legal title passes only on the depository record, the two can diverge. Any documentation prepared for the pilot should state unambiguously which record governs, and what happens if they conflict.
Why a Permissioned Ledger Changes the Analysis
Most of the legal difficulty associated with tokenised securities in other jurisdictions arises from decentralisation. Where a token circulates on a public network, the holder of a private key may control the asset without appearing on any register, which strains concepts of ownership, custody and attachment.
The Indian pilot sidesteps that problem by design. The ledger is permissioned and owned by the depositories, so every participant is a known and regulated entity and the beneficial owner record continues to exist. The consequence is that the pilot raises far fewer novel questions than the word tokenisation suggests. What it mainly changes is the speed and transparency of the record, not the legal relationships around it.
Open Questions for Documentation
Three drafting questions arise immediately and none is answered by the launch material. First, whether the trust deed and the information memorandum need to describe the token at all, or whether describing the security and its depository record remains sufficient. Second, how a security interest over a tokenised bond is created and perfected, given that the pledge mechanics available today operate on the depository record. Third, how an attachment or garnishee order would be given effect against a holding recorded in two places.
Until SEBI issues framework guidance, the conservative course is to document the instrument exactly as a conventional non-convertible security and to treat the ledger entry as an operational feature rather than a legal one.
Practice Notes
In practice, the pilot creates work for advisers well before it creates a market:
For issuers: Board and committee approvals for a tokenised issuance should record that the instrument remains a non-convertible security under the 2021 Regulations. Placement documents should describe the ledger arrangement factually and avoid language suggesting the token is itself the security.
For investors and their counsel: Diligence should confirm how title is evidenced and how a transfer would be given effect today, given that secondary trading is not yet live. Do not assume that holding a token confers a transfer right the pilot has not yet enabled.
For depositories and intermediaries: Operational risk sits in reconciliation between the token ledger and the beneficial owner records. The absence of a separate account or fresh know-your-customer step means existing client records carry the entire identification burden.
For treasury and compliance teams: Internal investment policies that define permitted instruments by reference to settlement mode may need amendment before a tokenised bond can be bought at all.
For lenders taking security: Where a tokenised bond is offered as collateral, perfect the security over the depository record in the conventional way and do not rely on control of a token as evidence of a perfected interest.
Key Provisions Discussed
Depositories Act, 1996: Framework for holding securities in dematerialised form, under which the depository is registered owner and the investor is beneficial owner.
SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021: Issuance, disclosure and listing framework for non-convertible securities, last amended on December 11, 2024.
Pilot Details
Initiative: Demat 2.0 pilot for tokenised corporate bonds on distributed ledger technology
Regulator: Securities and Exchange Board of India
Launch: September 10, 2026, at the Global Fintech Fest
Issuers to date: REC Limited (Rs. 500 crore, eighteen investors, September 7), Larsen and Toubro (Rs. 500 crore, four investors, September 9), IIFL (Rs. 25 crore)
Pilot size: Rs. 1,025 crore
Investor holding: Existing demat accounts, no separate account and no fresh know-your-customer process
Scope: Phase one covers issuance; secondary trading through request-for-quote platforms and retail access are stated to follow
Sources and References
Disclaimer: This article is for informational purposes only and does not constitute legal advice. Readers should consult a qualified legal professional for advice specific to their circumstances.
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