Central securities depository to host bonds monitoring on blockchain

National Securities Depository Limited (NSDL) has launched a blockchain-based monitoring system to track and strengthen the health of bond issuances and covenant.

Securities and Exchange Board of India (SEBI) announced the launch of the ‘Security and Covenant Monitoring System’ during the 25th anniversary celebration of NSDL on May 7. NDSL is hosting the blockchain network with the Central Securities Depository Limited (CSDL).

In August 2021, SEBI had noted the procedure of recording of charges by issuers, and monitoring by Debenture Trustees (DTs) and credit rating agencies among others.

“To ensure uniqueness of the assets of the issuer offered as security, appropriate validation/ duplicate checks based on parameters identified for each asset type have been put in place in the system,” SEBI had said in a statement.

At the launch event, SEBI chairperson Madhabi Puri Buch highlighted the transparency offered by blockchain as the chief reason for the technology’s popularity. “'Demat' revolution was the very first step by which entire market adopted technology. This day will also be remembered as an important day as we are taking the first step in terms of the use of DLT in the markets,” the Chairperson said.

However, she was not too convinced about its current cost-effectiveness, underlining that the anonymity that comes with blockchain is not a sought after feature by Indian authorities.

“This (anonymity) is the single biggest differentiator between private DLT manifestations and what we commonly refer to as Central Bank Digital Currencies where it is not envisaged that this aspect of the technology would… be put to use as we don’t wish to have anonymity,” Buch said.

NSCL is India’s oldest depository and controls almost 90% of India’s securities market. The data previously stored in centralised databases or system will be signed and time-stamped cryptographically and put into the ledger.

The original launch date of the “Security and Covenant Monitoring using Distributed Ledger Technology (DLT) was, however, the beginning of April.