Sebi explores tokenisation of corporate bonds for faster settlements

Regulator also plans bond ETFs, derivatives on corporate bond indices

The Securities and Exchange Board of India (Sebi) is planning to roll out a pilot project for the tokenisation of corporate bonds using distributed ledger technology (DLT), Chairman Tuhin Kanta Pandey said on Tuesday. Speaking at the CareEdge Debt Market Summit, Pandey said the pilot could be implemented within six to nine months. “The pilot will test whether tokenisation can deliver faster settlement, better traceability, automated servicing, and greater transparency,” he said.

 

Pandey said DLT has already been used by depositories for governance, management, and monitoring, and that Sebi is exploring whether corporate bonds can be made feasible through tokenisation using DLT. “This is basically instantaneous settlement with all the benefits of tokenisation. We also need to take on board the risks associated with tokenisation, especially on the quantum side. We will put together a consistent view from all stakeholders and develop a technology and operational model,” he added. He said the technology could lead to greater liquidity and autonomous settlement.

 

 

Tokenisation of financial assets refers to converting securities into smaller units called digital tokens. DLT, a decentralised mechanism, records transactions across multiple systems, making the process secure and transparent.

 

On the progress of developing corporate bond index derivatives, the chairman said the market regulator may launch them once the Reserve Bank of India (RBI) approves the draft guidelines issued earlier this year to facilitate them. The market regulator is also working with market participants, the RBI, and the Ministry of Finance to take forward the Union Budget announcement on a market-making framework.

 

Sebi is also working on bond exchange-traded funds and derivatives linked to corporate bond indices to improve liquidity, widen retail participation in debt markets through smaller ticket sizes, and help institutions hedge interest rate risks.

 

The regulator is also exploring a separate regulatory classification for debt brokers to reduce costs and lower entry barriers in the debt market. “There is also a need to review whether debt-only listed entities should meet the same rigour under Sebi (Listing Obligations and Disclosure Requirements) Regulations as equity-listed companies. We will take up this review in due course,” Pandey said.

 

He said the debt market remains concentrated in terms of ratings and sectors, limiting investor choice. The issuer base is also narrow, with only 776 of the 6,000 companies listed on stock exchanges having listed debt. “We need more issuers to see the debt market as a regular source of capital. Secondary market liquidity remains shallow. A buy-and-hold investor base provides stability, but when bonds rarely trade, volumes stay thin, price discovery weakens, exits become difficult, and new investors hesitate. Retail participation also remains low,” he said.

 

On concerns over India’s valuations slipping, Pandey said market valuations in some jurisdictions are rising because of exceptional investor interest. “The point is that market capitalisation depends on how companies are valued across the world. Some of the leading — or favourite — investee companies at the moment are those linked directly or indirectly to artificial intelligence (AI), whether through investments in AI, chips, memory, or other electronics used for AI infrastructure. That is the current flavour among investors, and market valuations shift accordingly,” he added.

 

With investor interest rising in Taiwan and its market capitalisation overtaking India’s, Sebi chairman said, “India is a highly diversified market. In Taiwan, there are concentrated stocks. A few companies, such as Taiwan Semiconductor Manufacturing Company, are critical to the global electronics supply chain. They are attracting more inflows, leading to higher valuations. This is something that happens in capital markets.”