India securities regulator to launch new blockchain-powered monitoring system

India’s national securities regulator is to launch a new system for monitoring financial instruments powered by blockchain, in a move that could mark a significant step in the use of distributed ledger technology in financial services regulation.

The Securities and Exchange Board of India announced earlier this week its plan to introduce a new system for “security and covenant monitoring” of a type of exchange-traded instrument known as non-convertible debentures.

According to the regulator, the new system will make use of distributed ledger technology in order to take advantage of more resilient solutions that centralized databases allow.

“DLT has the potential to provide a more resilient system than traditional centralized databases and offer better protection against different types of cyber-attacks because of its distributed nature, which removes the single point of attack.”

Non-convertible debentures are types of loan instruments that cannot be converted for shares. The new proposed system would keep track of different NCDs available for sale, monitoring any covenants that apply while keeping a record of credit ratings by instrument.

The system is to allow access to third parties such as credit ratings agencies, trustees, and NCD issuers in order to feed transaction data, which will then be available to stock exchanges and depositories on a real-time basis, introducing maximum transparency into the process.

All data written to the exchange will be time stamped, cryptographically secured, and recorded sequentially to provide an audit trail.

The solution will be the first large-scale deployment of distributed ledger technology of its kind from the Indian regulator, bringing into line with a number of large Indian companies in moving towards greater adoption of blockchain technology.

The system is currently in development and is expected to be rolled out ahead of April 2022.

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