Capital markets News

India’s National Securities Depository launches blockchain bond solution

covenants balance sheet

Madhabi Puri Buch, the head of India’s securities regulator SEBI, announced that the National Securities Depositary (NSDL) has gone live with a blockchain system to monitor the health of bond issuances. The launch of the ‘Security and Covenant Monitoring System’ was unveiled during the weekend’s 25th-anniversary celebration of NSDL, one of India’s two depositories. The NSDL is hosting the blockchain network with the Central Securities Depositary (CSDL). 

Blockchain is being used to immutably log the status of corporate bonds and other listed debt securities and share it transparently. For example, when a bond includes a charge over assets, every six months there needs to be an audit of the assets, and this audit information would be added to the blockchain. Other data to be logged includes interest payments and credit rating data.

By using blockchain, fraud may be reduced. For example, the credit rating agency will confirm the validity of any press release related to its credit report.

However, detailed guidance announced in late March indicates some concern about duplication. Assets provided as security for the debt issuance have to be logged on the blockchain. This might include equipment, inventory and receivables. In its guidance, SEBI highlighted the need to ensure that an asset is only used once for security. The term “duplicates” and how to prevent them was mentioned seven times in a short document.

In August, SEBI mandated that corporate bonds and other listed debt securities should use the Security and Convenant Monitoring System. Apart from the depositories that are hosting the DLT network, participants include securities issuers, debenture trustees, credit rating agencies, registrars and transfer agents. The original target go-live date was the start of April, so the launch is only marginally behind schedule.

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