HKMA launches Digital Bond Subsidy Scheme with a maximum subsidy of 2.5 million per application.

Source of the article: Ta Kung Pao

To encourage wider use of tokenization technology in the capital market, the Hong Kong Monetary Authority announced on 28 November the launch of the Digital Bond Grant Scheme to provide funding for issuance digital bonds in Hong Kong that meet the relevant eligibility requirements, with a maximum grant amount of $2.5 million per issuance. Applications will be accepted from now on for 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 the policy address released last month, the HKMA proposed the launch of the 'Digital Bond Subsidy Scheme' to encourage more issuers and financial institutions to adopt tokenization technology in capital market transactions. The HKMA announced details yesterday, describing tokenization as having the potential to improve market efficiency, drop costs, enhance transparency, and encourage investor participation. This will help the HKMA promote the development of the bond market and establish Hong Kong as a regional hub for bonds.

According to management consulting firm McKinsey, over US$10 billion in issuance of tokenization bonds have been issued globally in the past decade. In Hong Kong, the HKMA launched the Evergreen project in 2021 to explore, showcase and enhance the application of tokenization technology in the capital markets. The HKMA has assisted the Hong Kong SAR Government in issuing the first batch of tokenization green bonds in February 2023, as well as the world's first multi-currency digital bonds in February 2024, establishing good examples for the private market.

Promote the application of new technologies in the market

The Chief Executive of the Hong Kong Monetary Authority, Eddie Yue, wrote in the column 'Thoughts on the Economy' that after two successful issuances and tokenizations of bonds, the Evergreen project has moved beyond the proof of concept (PoC) stage. The next phase aims to promote the wider adoption of 'feasible' solutions in the market.

For some bond issuers, obstacles still exist in terms of technology, operations and law when using distributed ledger technology (DLT). Although the additional costs in this area are expected to gradually decrease as DLT becomes more widely used in the capital market, it is believed that the HKMA's introduction of additional incentive measures at this stage will help to promote the application of relevant technologies in the market.

The funding for this 'additional incentive measure' is divided into two levels. If each digital bond issuance meets the 'basic requirements' of the program, it can receive a maximum subsidy of 1.25 million yuan; if it simultaneously meets the 'basic requirements' and 'additional requirements', it can receive a maximum full subsidy of 2.5 million yuan.

The basic requirements include the issuance of the digital bonds in Hong Kong and the adoption of a DLT platform operated by CMU (Debt Instrument Central Settlement System), or the relevant issuance and team have significant 'Hong Kong elements', such as the business and manpower scale of digital asset platforms and service providers in Hong Kong.

As for additional requirements, such as a minimum issuance size of at least HKD 1 billion or the total number of investors in the subscription digital bonds being no less than 5, or the bonds being listed on the virtual asset trading platform recognized by the Stock Exchange of Hong Kong or the Hong Kong Securities and Futures Commission.

During the planned 3-year period, each bond issuer (including its related institutions) can apply for funding for up to two digital bonds.

Research has already issuance government bonds tokenization

Looking ahead, Mr. Hui Chi-wai, Assistant Chief Executive (External) of the Monetary Authority, said that the authorities intend to continue the issuance and tokenization of bonds next year to promote market development. In addition, the Authority will study the tokenization of government bonds already issued to increase the liquidity of digital bonds in the secondary market and expand the market's collateral pool, but there is no specific timetable at the moment.

For details, please visit the official website of the HKMA.