The Hong Kong Exchanges and Clearing Limited (HKEX), operator of the Hong Kong Stock Exchange, Hong Kong Futures Exchange, and London Metal Exchange, has launched a new equities settlement platform powered by blockchain-based smart contracts.
HKEX Synapse, as the platform is called, will be deployed on Stock Connect – an HKEX channel through which investors in Mainland China and Hong Kong can trade and settle shares listed on international markets via Chinese stock exchanges and clearing houses.
The novel platform is set to use the Digital Asset Modelling Language (DAML), a blockchain programming language tailored to streamline post-trade procedures and enhance operational efficiencies, to integrate smart contracts that will help the HKEX clearing house update and make trade settlements faster.
Chinese Investors Can Now Make Cross-Border Trade Settlements Using Smart Contracts
According to a statement released by HKEX on October 4, Synapse will benefit asset managers, brokers, custodians, and clearing participants by making settlements faster and more transparent.
The system can create settlement instructions for all participants along the settlement chain, facilitate concurrency processing, and allow for real-time data syncing to handle higher trading volumes, which is important when it comes to connecting traders in two different markets.
In the first half of 2023 alone, the Northbound Stock Connect averaged $15.1 billion in average trading volume, which according to the clearinghouse marked a 5% rise from the previous year and a 50% jump compared to 2020 levels.
In her statement, Glenda So, co-head of markets at HKEX, said the “technology-empowered” platform will not only improve post-trade efficiencies but over time, help build a better and stronger ecosystem that supports both market growth and investor growth strategies.
HKEX and HKEX Synapse will be linked to the Hong Kong Depository Trust and Clearing Corporation through its Institutional Trade Processing service that allows for central matching of cross-border transactions. All settlement instructions generated by Stock Connect are automatically sent to Synapse, thus enhancing the workflow of trade confirmation.
Synapse, which is offered as an opt-in service, was developed to support institutional investors participating in the Northbound Stock Connect. The platform helps both local and overseas investors settle trades in Chinese yuan (Renminbi) and handle post-trade operations with ease across varying time zones.
However, HKEX did not reveal details about which blockchain it will be using to deploy Synapse smart contracts, who operates the nodes, or how many nodes will be managed by the clearinghouse.
Prominent Global Exchanges Are Adopting Blockchain Technology For Improving Trade Settlements
A number of financial exchanges are exploring the use of blockchain technology to enhance the efficiency of their daily operations. Last month, the London Stock Exchange Group (LSEG) introduced plans to make LSE the first big exchange to widely use blockchain for trading regular financial assets. In an interview given to Financial Times, the director of capital markets at LSEG, Murray Roos, said the company chose to go along with the plan to implement the technology after flirting with the idea for about a year.
However, the group noted that the exchange would not be creating anything connected to crypto assets, instead it will use the underlying technology powering the digital asset to enhance the transaction process for traditional financial assets.
In August, the Society for Worldwide Interbank Financial Telecommunication (SWIFT) conducted trials on the Chainlink (LINK) blockchain for transferring tokenized assets between banks. SWIFT is a payment system that enables over 11,000 banks and other financial institutions across more than 200 countries to securely exchange electronic messages about cross-border transactions
The Australian Securities Exchange (ASX) also revealed that it was working on developing a blockchain-based system to modernize its outdated trade settlement platform.