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The national securities regulator of India plans to launch a new blockchain-powered system for monitoring financial instruments, which could be a significant step forward in the use of distributed ledger technology in financial services regulation.

The Securities and Exchange Board of India announced earlier this week its intention to implement a new system for security and covenant monitoring of non-convertible debentures, a type of exchange-traded instrument.

According to the regulator, the new system will use distributed ledger technology to benefit from more resilient solutions that centralized databases enable.

“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.”

Features of the Security and Exchange Board of India (SEBI)

Non-convertible debentures are loan instruments that cannot be exchanged for stock. The new proposed system would keep track of the various NCDs that are available for sale, as well as any covenants that apply, as well as a record of credit ratings by instrument.

Third parties, such as credit rating agencies, trustees, and NCD issuers, will be able to feed transaction data into the system, which will be available in real-time to stock exchanges and depositories, bringing maximum transparency to 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 Indian regulator’s first large-scale deployment of distributed ledger technology of its kind, aligning with many large Indian companies in moving toward greater adoption of blockchain technology.

The system is currently being developed and is expected to be operational by April 2022.

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