The Hong Kong Monetary Authority (HKMA) has launched a groundbreaking initiative to support the issuance of tokenized bonds, aiming to advance the adoption of blockchain technology in the capital markets.
Digital Bond Grant Scheme (DBGS)
On November 28, 2024, the HKMA announced the Digital Bond Grant Scheme (DBGS), which provides financial incentives to encourage issuers to adopt tokenization.
Key details of the program include:
- Coverage: Up to 50% of eligible expenses for tokenized bond issuance.
- Cap per Grant: Up to HK$2.5 million ($321,184).
- Eligibility: Each issuer can receive up to two grants.
- Duration: The scheme will accept applications for an initial three-year period, starting November 28, 2024.
Eligibility Criteria
To qualify for financial assistance, bonds must meet specific criteria:
- Platform Requirement: The bonds must be issued on a platform operated by the Central Moneymarkets Unit (CMU).
- Local Presence: Issuers must have a significant presence in Hong Kong.
- Full Grant Eligibility: A minimum bond size of $128.5 million issued to at least five investors and listed on the Stock Exchange of Hong Kong (SEHK) or a licensed platform.
Fostering Tokenization Adoption
The DBGS stems from Project Evergreen, a 2021 HKMA research initiative exploring the potential of distributed ledger technology (DLT) in financial markets.
“While tokenized bonds are gaining traction, issuers still face adoption challenges. The DBGS offers financial incentives to accelerate tokenization adoption,” said HKMA Chief Executive Eddie Yue.
The DBGS aligns with Hong Kong’s broader efforts to establish itself as a leading crypto-friendly financial hub.
Hong Kong’s Progress in Tokenization and Crypto
- In February 2023, Hong Kong issued $100 million in tokenized green bonds under its Green Bond Programme, signaling early leadership in this space.
- Globally, over $10 billion in tokenized bonds have been issued over the past decade, showcasing the growing popularity of blockchain in financial instruments.
Crypto Tax Exemptions for Hedge Funds
On November 28, the Financial Times reported that Hong Kong is exploring tax exemptions on crypto gains for hedge funds, private equity firms, and family offices. This proposal includes exemptions for investments in private credit, overseas property, and carbon credits, further reinforcing the region’s appeal to institutional investors.
ZA Bank’s New Crypto Service
Hong Kong’s largest virtual bank, ZA Bank, launched a service on November 25, enabling retail customers to trade Bitcoin and Ether directly using fiat currencies.
New Crypto Trading Platform Licenses
The Securities and Futures Commission (SFC) has ramped up its licensing approvals for crypto exchanges under its new regulatory framework:
- HKVAX became the third licensed crypto exchange in October 2024.
- 11 platforms are currently listed as “deemed-to-be-licensed” and are undergoing regulatory adjustments.
- The SFC plans to issue more licenses by year-end, with initial on-site inspections already completed.
Conclusion
The HKMA’s DBGS and Hong Kong’s broader crypto-friendly initiatives highlight its commitment to innovation and leadership in the blockchain space. As tokenized bonds and digital assets reshape global markets, Hong Kong is positioning itself as a prime destination for blockchain innovation.
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