To improve the security of trades, SEBI has asked depositories to use distributed ledger technology, also known as blockchain technology. As a result, depositories can record and monitor credit ratings of non-convertible debentures and the creation of charges on these securities.
According to the market regulator, the distributed ledger technology provides a more resilient system than centralized databases. Moreover, it also offers better protection against different types of cyberattacks. This is due to the lack of centralization, which removes the single point of attack possibility.
The market regulator has constituted a group of officials from SEBI, stock exchanges, and the Trustees Association of India (TAI). The group had suggested ways to strengthen the process of security creation and monitoring of security created. Moreover, it also covered the monitoring of the asset cover and covenants of non-convertible securities.
SEBI stated that the depositories are developing a platform incorporating blockchain tech for security and covenant monitoring systems. Moreover, the system will start working from 1st April 2022.
On a side note, the new system will also help in continuous monitoring of the credit rating of the NCDs. The market regulator stated,“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, and credit rating agencies.”
This system can record the following information: security creation, asset cover, and covenants, interest, and redemption payment of non-convertible securities. It also covers credit rating information and performs functions including periodical monitoring of security cover, asset cover, and covenants.