Source: Ta Kung Pao
To encourage more widespread use of tokenization technology in the capital market, the Hong Kong Monetary Authority (HKMA) announced on November 28 the launch of the "Digital Bond Subsidy Scheme", which provides subsidies for digital bonds issued in Hong Kong that meet the relevant eligibility requirements. The maximum subsidy amount for each bond issuance is HK$2.5 million. The subsidy scheme is open for applications starting from today, with an initial period of 3 years. The HKMA hopes that the scheme will promote the development of the bond market and Hong Kong's role as a regional bond hub.
In last month's Policy Address, the HKMA proposed to launch the "Digital Bond Subsidy Scheme" to encourage more issuers and financial institutions to adopt tokenization technology in capital market transactions. The HKMA announced the details yesterday, describing tokenization as having the potential to improve market efficiency, reduce costs, enhance transparency and facilitate investor participation, which will help the HKMA promote the development of the bond market and Hong Kong's role as a regional bond hub.
According to management consulting firm McKinsey, the global issuance of tokenized bonds has exceeded US$10 billion in the past 10 years. In Hong Kong, the HKMA launched the Evergreen project in 2021 to explore, demonstrate and enhance the application of tokenization technology in the capital market, and subsequently assisted the Hong Kong SAR Government in issuing the first tokenized green bonds in February 2023, as well as the world's first multi-currency digital bonds in February 2024, establishing good case studies for the private market.
Promoting market application of new technologies
HKMA Chief Executive Eddie Yue wrote in the "Viewpoint" column that after two successful issuances of tokenized bonds, the Evergreen project has moved beyond the proof-of-concept (PoC) stage, and the next goal is to promote more widespread application of "viable" solutions in the market.
For some bond issuers, there are still barriers in terms of technology, operations and legal aspects in adopting distributed ledger technology (DLT). Yue pointed out that while the additional costs in this regard are expected to gradually decrease as the application of DLT in the capital market becomes more widespread, the HKMA believes that the introduction of additional incentive measures at this stage will help drive market adoption of the relevant technologies.
This "additional incentive measure" of the subsidy is divided into two tiers. If a digital bond issuance meets the "basic requirements" of the scheme, it can receive a maximum subsidy of HK$1.25 million; if it meets both the "basic requirements" and the "additional requirements", it can receive the full subsidy of HK$2.5 million.
The basic requirements include that the digital bond is issued in Hong Kong and uses the DLT platform operated by the CMU (Central Moneymarkets Unit), or the relevant issuance and team have significant "Hong Kong elements", such as the business and manpower scale of the digital asset platform and related service providers in Hong Kong.
The additional requirements include, for example, an issuance size of at least HK$1 billion or equivalent, or a total of at least 5 investors subscribing to the digital bond, or the bond being listed on the Stock Exchange or a virtual asset trading platform recognized by the Hong Kong Securities and Futures Commission.
During the 3-year implementation period of the scheme, each bond issuer (including its affiliated institutions) can apply for subsidies for a maximum of two digital bond issuances.
Exploring tokenization of previously issued government bonds
Looking ahead, HKMA Assistant Chief Executive (External) Hui Wai-chi said the authority intends to continue issuing tokenized bonds next year to drive market development. In addition, the HKMA will also explore the tokenization of previously issued government bonds to increase the liquidity of digital bonds in the secondary market and expand the collateral pool in the market, but there is no definite timeline yet.
For more details, please visit the HKMA website
https://www.hkma.gov.hk/chi/news-and-media/press-releases/2024/11/20241128-3/
