The Launch of the Digital Bond Grant Scheme
The Hong Kong Monetary Authority (HKMA) has initiated a new program designed to promote the issuance of tokenized bonds. On November 28, the HKMA unveiled the Digital Bond Grant Scheme (DBGS), which will provide financial support covering up to 50% of eligible expenses associated with tokenized bond issuances. Each grant is capped at approximately $321,184 (2.5 million Hong Kong dollars) and allows each company to apply for a maximum of two grants.
Encouraging Tokenization in Capital Markets
The primary objective of the DBGS is to stimulate the growth of the digital securities market while enhancing the adoption of tokenized assets in capital market transactions. The program will be accessible for an initial duration of three years, with applications accepted starting on November 28.
To qualify for the half grant funding, the tokenized bond must be issued on a platform operated by the Central Moneymarkets Unit (CMU) and must be conducted in Hong Kong. Additionally, the issuer must maintain a significant local presence. For the full grant, a minimum bond size of $128.5 million is required, along with issuance to at least five investors and listing on either the Stock Exchange of Hong Kong (SEHK) or a platform licensed by the Hong Kong financial regulator.
Rationale Behind the Digital Bond Grant Scheme
Eddie Yue, HKMA’s Chief Executive, pointed to research findings from Project Evergreen, a 2021 initiative that examined the role of distributed ledger technology in financial markets, as a driving force behind the DBGS. Although tokenized bonds are increasingly gaining popularity, Yue noted that issuers still encounter various challenges in the adoption process. To address these hurdles, the HKMA has introduced this financial incentive to accelerate the utilization of tokenized bonds.
Hong Kong’s Growing Tokenization Landscape
Hong Kong has made significant progress in the tokenization domain. In February 2023, the government issued $100 million worth of tokenized green bonds as part of its Green Bond Programme. Additionally, over the past decade, tokenized bonds valued at more than $10 billion have been issued globally, showcasing a burgeoning interest in this innovative financial instrument, as highlighted by Yue.
This new subsidy program aligns with Hong Kong’s broader strategy to strengthen its position as a crypto-friendly financial hub.
Tax Exemptions and New Crypto Services
On the same day the DBGS was announced, the Financial Times revealed that Hong Kong authorities are contemplating tax exemptions on crypto gains specifically aimed at hedge funds, private equity firms, and family offices. These proposals, currently under consultation, may also extend to cover private credit, overseas property, and carbon credit investments.
In a related advancement, ZA Bank, Hong Kong’s largest virtual bank, introduced a service on November 25 that enables retail users to buy and sell Bitcoin and Ether using fiat currency directly.
Expanding the Regulatory Framework for Crypto Trading
Moreover, in October, Hong Kong’s financial regulator issued its third license under the newly established crypto trading platform regime, signaling intentions to approve additional licenses by the end of the year. Julia Leung, Chief Executive of the Securities and Futures Commission (SFC), confirmed that HKVAX became the latest company to obtain a license to function as a crypto exchange in Hong Kong.
Leung also mentioned that there are 11 other platforms on the SFC’s “deemed-to-be-licensed” list, which includes companies that have submitted their applications under the new regulatory framework. The SFC is actively conducting initial onsite inspections of these applicants and has requested necessary modifications to ensure compliance with regulatory standards. Furthermore, Leung expressed the regulator’s goal of issuing more licenses in batches before the year concludes.