Tokenization can improve bond markets’ efficiency, a report released by the Hong Kong Monetary Authority (HKMA) on August 25 said. Earlier this year, HKMA successfully experimented with a $100 million tokenized green bond issuance in collaboration with the government.
Tokenization has the potential to significantly improve the bond markets, particularly in efficiency, liquidity, and transparency, the report, Bond Tokenisation in Hong Kong, said.
“The issuance demonstrated the possibility of deploying distributed ledger technology (DLT) to a real capital markets transaction under the existing Hong Kong legal framework. It also showed the potential in DLT to enhance efficiency, liquidity and transparency in bond markets,” the report said.
The successful issuance of green bonds has provided a blueprint for similar initiatives in the future. The central bank will enhance the legal and regulatory frameworks geared towards greater tokenization of the bond market, HKMA said in the report.
“The HKMA in coordination with the Government will work with the industry to conduct further tokenized issuance(s) to advance development on this front,” the regulator said in a press statement shared alongside the report.
Regarding the experiment’s shortcomings, HKMA’s chief executive, Eddie Yue, said the tokenization initiative in the bond market is still in its infancy.
“As more financial institutions come up with their own tokenization solutions… It will be crucial to consider how different solutions can connect and interact with each other as well as conventional systems to avoid fragmentation,” Yue said.
