The Hong Kong Monetary Authority (HKMA) has taken a bold step to advance the city’s capital markets by launching a subsidy program aimed at encouraging the issuance of tokenized bonds. Announced on Nov. 28, the Digital Bond Grant Scheme (DBGS) will cover up to 50% of eligible expenses incurred during the issuance of digital bonds, with a maximum cap of HK$2.5 million ($321,184) per grant.
According to the HKMA, the DBGS seeks to “promote the development of the digital securities market and encourage broader adoption of tokenization technology in capital market transactions.”
Tokenization: The Future of Capital Markets
Tokenization, the process of transforming traditional assets into digital tokens on a blockchain, is gaining traction in global financial markets. In Hong Kong, the DBGS marks a significant push toward mainstream adoption. Eligible companies can apply for the program starting Nov. 28, with the initial phase set to run for three years.
The scheme offers two tiers of grants: a full grant and a half grant. Companies seeking the half grant must issue bonds digitally on a platform operated by the Central Moneymarkets Unit (CMU) and maintain a substantial presence in Hong Kong. The full grant, however, requires issuances to meet stricter criteria, including a minimum bond size of $128.5 million, distribution to at least five investors, and listing on the Stock Exchange of Hong Kong (SEHK) or a licensed platform.
The DBGS is a direct outcome of HKMA’s ongoing exploration of distributed ledger technology (DLT) through Project Evergreen, launched in 2021. Eddie Yue, chief executive of HKMA, highlighted in a recent update that the scheme was designed to address challenges faced by bond issuers in adopting tokenization. “Despite growing interest, some issuers still face hurdles in adopting tokenized bonds, which is why we’ve created additional incentives to encourage uptake,” Yue explained.
Hong Kong’s Green Bond Success and Global Trends
Hong Kong’s push toward tokenization is not without precedent. In February 2023, the government successfully issued $100 million in tokenized green bonds under its Green Bond Programme. Yue noted that tokenization has gained significant momentum globally, with over $10 billion in tokenized bonds issued in the last decade.
In a related move to bolster its reputation as a leading crypto hub, Hong Kong is reportedly considering tax exemptions on crypto gains for hedge funds, private equity firms, and family investment offices. A Financial Times report on Nov. 28 revealed that the proposal, currently under a six-week consultation period, also includes exemptions for investments in private credit, overseas property, and carbon credits.
Virtual Banking: ZA Bank’s Crypto Offering
Further demonstrating Hong Kong’s commitment to digital asset innovation, ZA Bank, the city’s largest virtual bank, launched a new service on Nov. 25 that allows retail users to buy and sell Bitcoin and Ether using fiat currencies. This move underscores Hong Kong’s growing embrace of blockchain technology and cryptocurrency as it aims to solidify its position as a global financial leader in the digital era.
With the DBGS and other initiatives, Hong Kong is positioning itself at the forefront of the tokenized financial revolution, setting the stage for a new era in capital markets.
