The Hong Kong Monetary Authority (HKMA) has successfully completed a study to investigate the potential impact of tokenization on the bond market in the region.
The Hong Kong Monetary Authority (HKMA) released a report on August 25 summarizing the results of a study on distributed ledger technology (DLT) under Project Evergreen. The initiative involves the application of tokenization to bond transactions.
Project Evergreen tested various options for issuing and using tokenized green bonds. According to Eddie Yue, Head of HKMA, the study proved that tokenization can significantly improve almost all processes in the bond market. In particular, DLT has the potential to improve efficiency, liquidity, and transparency in debt securities transactions.
Among the key benefits of bond tokenization identified by the study was the ability to:
- move to a paperless workflow;
- eliminate the need for a physical global certificate;
- establish interaction between parties within a single DLT platform;
- increase the transparency of transactions;
- synchronize data in real time.
However, the study also revealed some drawbacks of bond tokenization. In particular, the innovativeness of the technology suggests that it needs to be thoroughly researched before large-scale implementation, as the development of different DLT solutions by financial institutions could lead to market fragmentation. Moreover, the government will need to make several adjustments to the regulatory regime to provide technological innovation with regulatory certainty. According to Yue, the regulator will continue to investigate the application of DLT technologies in the capital market and provide the authorities with its recommendations on the necessary changes.
The Hong Kong authorities aim to make the region the crypto hub of Asia, and more than a hundred crypto companies have already received a license to operate in the jurisdiction.
