The Securities and Exchange Board of India (Sebi) asked Depositories on Wednesday to integrate blockchain technology — also known as distributed ledger technology (DLT) — to record and monitor security creation and credit ratings of non-convertible debentures (NCDs).
Indian Market Regulator Sebi Tells Depositories to Use Blockchain Technology
On Wednesday, Sebi revealed that a ‘Security and Covenant Monitoring System’ is being developed to “strengthen the process of security creation and monitoring of asset cover and covenants of the non-convertible securities.”
The regulator added that the system uses blockchain technology for record-keeping, which offers better protection than centralized databases. In particular, Sebi extolled DLT’s distributed nature and how it countered different kinds of cyberattacks by removing a single point of attack.
“The system will give permissions to the Debenture Trustees, Issuers, Credit Rating Agencies, etc. to update the data/information and would be accessible to other entities like stock exchanges, depositories, etc,” Sebi said in a prepared press statement.
Sebi Explains the Benefits of New DLT-Powered Monitoring System
Sebi also divulged some details on the system’s functioning and how it would secure records. As per the regulator, information stored in the system will be cryptographically signed, time-stamped, and sequentially added to the ledger. This will make audit trails transparent.
Furthermore, since it would be based on permissioned DLT, the system will allow all relevant stakeholders to have access to their share of information.
Transaction data would only be provided to necessary stakeholders on a need-to-know basis.
Also, the proposed system would leverage DLT’s ability to self-execute code to prevent additional charges on any asset if the charge is already created up to the asset’s present value.
“Thus this system will be a quasi-registry of charges on full implementation and will achieve the objective viz. “what is the value of security that a charge holder has and who all does it shares with,” Sebi noted while adding that the system would go live next year in April.