Hong Kong central bank to subsidize companies issuing tokenized bonds

Hong Kong’s central bank, the Hong Kong Monetary Authority (HKMA), has launched a scheme to subsidize some of the costs of issuing tokenized bonds, aimed at encouraging more adoption of tokenization in its capital markets

According to the Nov. 28 statement and accompanying guidelines, the HKMA’s Digital Bond Grant Scheme (DBGS) will subside up to 50% of the “Eligible Expenses” for each eligible digital bond issuance — but only up to a certain amount

“The DBGS aims to promote the development of the digital securities market and encourage broader adoption of tokenization technology in capital market transactions,” HKMA said in a statement.

Tokenization involves transforming an asset into digital tokens on a blockchain. Source: Moneta. holdings

Subject to eligibility requirements, there’s a maximum cap of $321,184 (2.5 million Hong Kong dollars) for a full grant and two issuances per company. A half grant of $160,597 (1.25 million Hong Kong dollars) is also available.

The DBGS will start accepting applications on Nov. 28 and run for an initial period of three years.

To qualify for the half grant, the bond must be issued digitally, on a platform operated by the Central Moneymarkets Unit (CMU) and issued in Hong Kong by a company with a “substantial Hong Kong presence.”

The full grant also requires bonds to be issued at a minimum size of $128.5 million (1 billion Hong Kong dollars) to five or more investors and listed on the Stock Exchange of Hong Kong Limited (SEHK) or a platform licensed by Hong Kong’s financial regulator

In a Nov. 28 update on Project Evergreen, commissioned in 2021 to explore distributed ledger technology for financial markets, the chief utive of the HKMA, Eddie Yue, wrote the DBGS came as a direct result of that research.

According to Yue, some bond issuers still have hurdles in adopting tokenized bonds, which is why the HKMA decided to create an “additional incentive” to help “encourage take-up.”

Hong Kong’s government has already issued $100 million ($800 million Hong Kong dollars) in tokenized green bonds under its Green Bond Programme on Feb. 16.

Related: HKEX launches digital asset index as Hong Kong expands crypto licensing

“Tokenisation has since gained much momentum. So far, market estimates suggest that over $10 billion worth of tokenized bonds in total notional value have been issued in the last decade globally,” Yue wrote.

Meanwhile, a Nov. 28 Financial Times report outlined how Hong Kong authorities are considering crypto gain tax exemptions for hedge funds, private equity and family investment vehicles to strengthen its position as a leading crypto financial hub.

The proposal is open for a six-week consultation and includes exemptions for investments in private credit, overseas property and carbon credits.

Hong Kong’s largest virtual bank, ZA Bank, also recently launched a new service on Nov. 25, allowing retail users to buy and sell Bitcoin (BTC) and Ether (ETH) directly using fiat

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