Global: Hong Kong Central Bank Introduces Subsidies to Boost Tokenized Bond Issuance

Hong Kong is strengthening its position as a global financial innovator by incentivizing tokenized bond issuances through a subsidy program introduced by the Hong Kong Monetary Authority (HKMA). This initiative aims to encourage broader adoption of tokenization technology in capital markets.

The Digital Bond Grant Scheme (DBGS)

On November 28, the HKMA announced its Digital Bond Grant Scheme (DBGS), which will subsidize up to 50% of eligible costs for issuing tokenized bonds, with a cap of $321,184 (2.5 million Hong Kong dollars) per grant. Eligible companies may receive funding for up to two issuances.

The DBGS is part of Hong Kong’s broader efforts to promote digital securities and runs for an initial three-year period. Applications opened on November 28.

Eligibility Criteria

• Half Grant: Bonds must be digitally issued on a platform operated by the Central Moneymarkets Unit (CMU) and issued in Hong Kong by companies with a significant local presence.
• Full Grant: Bonds must meet stricter requirements, including a minimum issuance size of $128.5 million, distribution to at least five investors, and listing on the Stock Exchange of Hong Kong (SEHK) or a platform licensed by Hong Kong’s financial regulator.

Driving Adoption Through Incentives

The DBGS is a direct outcome of the HKMA’s Project Evergreen, a research initiative launched in 2021 to explore distributed ledger technology in financial markets. HKMA Chief Executive Eddie Yue highlighted that despite the growing momentum for tokenization—already accounting for over $10 billion in tokenized bond issuances globally in the last decade—some issuers still face adoption challenges.

“These additional incentives are designed to lower barriers and encourage participation in tokenized bond markets,” Yue noted.

Tokenization and Green Bonds

Tokenization, which converts traditional assets into digital tokens on a blockchain, is seen as a transformative force in capital markets. Earlier this year, on February 16, 2023, Hong Kong’s government issued $100 million in tokenized green bonds under its Green Bond Programme, demonstrating the potential of blockchain technology in sustainable finance.

Complementary Developments in Hong Kong’s Financial Ecosystem

Hong Kong’s efforts to foster innovation extend beyond tokenization. Recent initiatives include:

• Crypto Tax Incentives: Authorities are considering tax exemptions for hedge funds, private equity, and family investment vehicles on crypto gains, with consultations open for six weeks.
• Digital Asset Services: On November 25, ZA Bank, Hong Kong’s largest virtual bank, launched a service enabling retail users to trade Bitcoin and Ether directly using fiat currencies.

These measures aim to bolster Hong Kong’s reputation as a global hub for digital finance and crypto innovation, aligning with its strategic vision for the future of financial services.