The Hong Kong Monetary Authority (HKMA) introduced the Digital Bond Grant Scheme (DBGS) to encourage tokenized bond issuances. This initiative aims to drive growth in the digital securities market and increase the use of tokenization in capital markets.
Key Features of the Grant Scheme
On November 28, the HKMA announced the DBGS. This scheme covers up to 50% of eligible expenses for tokenized bond issuances, with a maximum grant of $321,184 (2.5 million Hong Kong dollars). Each company can apply for two grants.
The program will run for an initial three years, and applications opened on the day of the announcement.
Eligibility Criteria
To qualify for the subsidy, tokenized bonds must meet the following criteria:
- Issuance Platform: Bonds must use the Central Moneymarkets Unit (CMU) platform.
- Location: Bonds need to be issued in Hong Kong, and the issuer must have a strong local presence.
- Grant Categories:
- Half Grant: Bonds meeting the basic criteria qualify.
- Full Grant: Bonds must have a minimum size of $128.5 million, be issued to at least five investors, and be listed on either the Stock Exchange of Hong Kong (SEHK) or a platform licensed by local regulators.
Project Evergreen’s Influence
Eddie Yue, Chief Executive of the HKMA, explained that the DBGS stems from insights gained during Project Evergreen, a research initiative from 2021. He noted that while tokenized bonds are gaining attention, adoption still faces challenges. To address this, the HKMA introduced financial incentives to boost uptake.
Hong Kong’s Achievements in Tokenization
Hong Kong has already made significant progress in tokenization. In February 2023, the government issued $100 million in tokenized green bonds under its Green Bond Programme. Globally, tokenized bonds have exceeded $10 billion in issuance over the last ten years, Yue highlighted.
Aligning with Broader Crypto-Friendly Policies
The DBGS aligns with Hong Kong’s efforts to establish itself as a hub for digital finance. On November 28, the Financial Times reported that authorities are considering tax exemptions for hedge funds, private equity, and family offices on crypto-related gains. This proposal may also cover private credit, overseas property, and carbon credit investments.
Advancements in Virtual Banking and Regulation
On November 25, Hong Kong’s largest virtual bank, ZA Bank, introduced a service allowing retail users to trade Bitcoin and Ether directly with fiat currency.
In October, the Securities and Futures Commission (SFC) granted its third license under the new crypto trading platform regime. HKVAX became the latest licensed platform, with 11 others listed as “deemed-to-be-licensed.” These platforms are undergoing compliance checks to meet regulatory standards.
Future Prospects
Julia Leung, Chief Executive of the SFC, announced plans to issue additional licenses in batches by the year’s end. This demonstrates Hong Kong’s commitment to fostering a dynamic digital asset ecosystem.
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