SEBI green lights blockchain use for monitoring securities and covenants
Securities and Exchange Board of India (SEBI) has asked its depositories to employ distributed ledger technology (blockchain technology) for recording and monitoring securities generated as well as non-convertible securities covenants.
SEBI organized a group of SEBI officials, depositories, stock exchanges, and India’s trustee association in 2020. Following the meeting, they arrived at the conclusion that depositories must construct and host a security and covenant monitoring system using blockchain technology.
Also read: Blockchain Technology & its Functionalities.
The Framework
As per SEBI, the implemented technology will record and monitor the created security, as well as monitor covenants of non-convertible securities. Further, the system will record the process of creating a security, continuous monitoring of covenants by debenture trustees, and credit rating of the non-convertible securities by the credit rating agencies (CRA). Additionally, SEBI has urged depositories to give secure login credentials to issuers, CRAs, and debenture trustees. This is for recording and validating relevant information on the system.
Depositories must also implement suitable measures to preserve data on the blockchain system, as well as build an alert mechanism that must be shared with stakeholders for information submission, acceptance, and rejection, as well as alerts for periodic and event-based compliances. As per the circular, debenture trustees should not assess and reject proposed non-convertible securities issuances if the value and details of assets documented do not match the proposed non-convertible securities issuance.
You can read the circular here.
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