The Securities and Exchange Boards of India, Sebi has asked the depositories to make use of distributed ledger or blockchain technology for monitoring and even recording the entire creation process of securities. The agency also directed further to monitor the details of the legal formalities and details of the securities which are non-convertible.
Sebi said that blockchain technology has the capacity to provide a more resilient system than traditional centralized databases as it offers better shielding against different types of cyber-attacks because of its distributed nature.
The regulator unveiled that a platform for a 'security and covenant monitoring system' hosted by depositories is being developed. The new platform shall be operational by April 01, 2022.
"A system using blockchain technology for non-convertible securities along with the underlying assets would be created and all charges and asset valuation transactions shall be recorded by the respective entities including Issuers, debenture trustees, Credit Rating Agencies, etc," regulator said.
Well, the use of Blockchain is aimed at strengthening the process of security creation and monitoring of security-created asset cover, and covenants of the NCDs. The platform will give permissions to the issuers, debenture trustees, and credit rating agencies to update the data and would be accessible to other entities such as stock exchanges and depositories as well. Sebi has also asked depositories to develop a mechanism for alerting purposes.
The data will be cryptographically signed, time-stamped, and sequentially added to the ledger. It would provide a verifiable audit trail of transactions. All the relevant stakeholders will get access to only their portion of information in the distributed ledger. The transaction history on the ledger would be fully encrypted.
The regulator said that Distributed Ledger Technology allows programming pre-agreed conditions that are automatically executed once certain conditions hold, enabling to program a logic that does not allow additional charge on any asset if the charge is already created up to the present value of the asset.
Sebi has directed depositories to provide secure login credentials to issuers, CRAs, DTs, etc. for recording and verifying requisite information on the platform and to create security mechanisms to ensure the integrity and security of the data on the system. Depositories have to share information with the other depository also for integrating and maintaining a compatible system.