Xu Zhengyu: The Monetary Authority is studying the application scenarios of tokenized bonds in the secondary market
At today's Legislative Council meeting, Member of the Legislative Council Lee Wai-hung asked the Secretary for Financial Services and the Treasury, Xu Zhengyu, about the government's efforts to consolidate Hong Kong's position as a bond center.
Xu Zhengyu responded in writing, stating that the government has been committed to promoting the development of the local bond market, aiming to enable Hong Kong to play a more diversified role as an international financial center. Through the regular issuance of government bonds in innovative forms (including institutional, retail, green, and tokenized bonds) to activate the market, enhance market infrastructure, and implement issuance subsidies (such as green and sustainable finance subsidy programs) and tax incentives (such as the qualified debt instrument program), Hong Kong has developed into an international bond issuance hub in the Asia-Pacific region.
Regarding the current situation of listed bonds, as of January 2, 2026, there are a total of 1,351 listed bonds on the Hong Kong Stock Exchange, of which 1,302 are bonds issued to professional investors under Chapter 37 of the Listing Rules (Chapter 37 bonds). Although Chapter 37 bonds are listed on the Hong Kong Stock Exchange, these bonds are generally traded mainly over-the-counter (OTC) rather than on the exchange. In addition, bonds are typically investment products held to maturity, and investors often hold bonds until maturity, so the liquidity of Chapter 37 bonds in the exchange market may be relatively limited.
Unlike bonds sold to retail investors, Chapter 37 provides a simplified and expedited bond listing process, with the Hong Kong Stock Exchange adopting a more relaxed approach to approval. Since Chapter 37 does not specify the types of bonds that can be listed, bonds with special or complex characteristics (such as perpetual or subordinated bonds, or bonds with floating interest rates or deferred interest payment clauses) can be listed under Chapter 37, and such bonds may not be suitable for retail investors.
To enhance the overall liquidity of the bond market, the Securities and Futures Commission (SFC) is studying the feasibility of an electronic trading platform for bonds established and operated by the market. In this regard, the SFC has appointed external consultants and has begun interviews with market participants, market operators, and regulatory bodies. Meanwhile, the SFC is also actively promoting the establishment of a commercial repurchase market and central counterparty system in Hong Kong, including conducting feasibility studies on the relevant settlement systems, and will continue to actively advance the measures listed in the aforementioned "Roadmap" to build a solid foundation for the further development of Hong Kong's bond market in terms of enhancing market efficiency and trading transparency, as well as reducing counterparty credit risk.
The Hong Kong Stock Exchange has been committed to enhancing the vitality and competitiveness of Hong Kong's securities and derivatives markets. Starting from January 2025, the Hong Kong Clearing Company will begin accepting offshore investors to use onshore government bonds and policy financial bonds in their Bond Connect holdings as collateral for northbound swaps, and will expand arrangements to all derivatives trading starting in March of the same year.
The government, financial regulatory bodies, and the Hong Kong Stock Exchange have been working to deepen and expand the connectivity of the capital markets between the two regions. With the strong support of the Central People's Government, several incremental expansion measures, including Bond Connect, Cross-Border Wealth Management Connect, the inclusion of exchange-traded funds in the connectivity targets, and Swap Connect, have been successively implemented in recent years. As global investors' demand for RMB-denominated products continues to grow, Hong Kong's role as a global offshore RMB business hub and risk management center becomes increasingly important. The Hong Kong Special Administrative Region Government is committed to continuously enriching RMB-denominated investment products and risk management tools to meet the needs of domestic and overseas investors Since 2023, the government has issued three batches of tokenized green bonds and will continue to issue tokenized bonds in the future, aiming to demonstrate their effectiveness in the market and provide a high-quality supply of tokenized bonds, thereby promoting the broader development of Hong Kong's tokenized bond market.
To enhance the attractiveness and demand for tokenized bonds, the Hong Kong Monetary Authority (HKMA) is also studying the application scenarios for the secondary market of tokenized bonds, such as using digital native bonds and tokenized traditional bonds as collateral for repurchase financing. The research results will be announced in due course.
Regarding retail investor participation, the HKMA previously completed concept validation through Project Genesis, conducted in collaboration with the Bank for International Settlements Innovation Hub. However, realizing the related concepts involves multiple aspects, including legal, technological, and operational considerations, and requires cooperation from different participants in the entire issuance chain. The HKMA is also assessing whether the current form of tokenized bonds can meet the needs of retail investors. The government and regulatory agencies will continue to communicate with the industry to explore how to effectively and appropriately apply tokenized bonds at the retail level
