NEW DELHI: The Securities and Exchange Board of India (SEBI) has ordered depositories to design, host, and operate a system that uses distributed ledger technology (DLT), often known as blockchain technology, to record and monitor securities formation as well as non-convertible securities covenants.

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1. The Securities and Exchange Commission using Blockchain Technology

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The Securities and Exchange Commission using Blockchain Technology

Last November, the markets regulator formed a working group comprised of officials from Sebi, depositories, stock exchanges, and the Trustees Association of India (TAI) to suggest ways to improve the process of security creation, security monitoring, asset cover monitoring, and non-convertible securities covenants.

Sebi has proposed the construction of a platform for security and covenant monitoring system hosted by depositories based on the recommendations. Blockchain technology can be integrated into multiple areas. The primary use of blockchain technology is as a distributed ledger for cryptocurrencies such as bitcoin; there were also a few other operational products that had matured from proof of concept by late 2016.

Security creation, asset cover and covenants, interest and redemption payment of non-convertible securities, credit rating information, and periodical monitoring of security cover, asset cover, and covenants will all be recorded by the system.

Depositories must “provide secure login credentials to issuers, credit rating agencies (CRAs), debenture trustees (DTs), and others for recording and verifying requisite information on the system” and “put in place adequate safeguards to ensure the integrity and security of the data on the system,” according to the directive. They’ve also been told to “exchange information with the other depository for the purpose of integrating and maintaining a compatible system,” according to a Sebi notification sent out on Friday.

Depositories will also need to build an alert system that will be provided to stakeholders for information submission, acceptance, and rejection, as well as notifications for periodic and event-based compliances.

Furthermore, if the issuer fails to inform the DT(s) of the status of interest payment or redemption amount, the DT(s) will have to inquire of the issuer and/or perform an independent evaluation (from banks, investors, etc.) to ascertain the same.

“Based on such assessment, DT(s) shall update in the system the status of payment of non-convertible securities within seven working days of interest payment becoming due or nine working days of the maturity/ redemption date,” Sebi said.