Hong Kong Stock Exchange, Digital Asset Partner On Blockchain Settlement Platformbr>
The Hong Kong Stock Exchange (HKEX) is working with blockchain startup Digital Asset (DA) to develop a blockchain post-trade allocation and processing platform for HKEX’s Northbound Stock Connect program.
Launched In November 2014, Stock Connect allows international and Mainland Chinese investors to trade securities in each other’s markets through the trading and clearing facilities of their home exchange. The scheme now covers over 2,000 eligible equities in Shanghai, Shenzhen and Hong Kong.
HKEX is collaborating with Digital Asset, which is led by former JP Morgan executive Blythe Masters, to develop a prototype with market participants to support post-trade through Stock Connect. The prototype is utilizing DA’s blockchain technology and smart contract modeling language, called DAML, to improve the sharing of information between asset managers, brokers, custodians and the Hong Kong Exchange on northbound trades made through Stock Connect. The goal is to address deficiencies in the post-trade aspects of the scheme.
“The problem at present is that there is a very short time period between when you execute a trade and the settlement cut off time, usually just four to five hours, during which asset managers need to decide how to allocate that trade to their funds, and pass that information down the chain to brokers and custodians,” said Lukas Petrikas, co head of HKEX’s innovation lab.
HKEX said that the prototype, which has been trialled by a handful of market participants, will soon be trialled with a wider group of market participants in the second phase of the initiative.
“[HKEX] will now be working together with Digital Asset to introduce the first blockchain platform for financial services in Hong Kong,” said Charles Li, the Chief Executive of HKEX. “This could be the beginning of a long journey of innovation and revolution and we’re very excited to share this important milestone.”
In December 2017, Digital Asset teamed with the Australian Securities Exchange (ASX) to help the exchange replace its Clearing House Electronic Subregister System (CHESS) with a distributed ledger technology (DLT). However, in September of this year, the ASX postponed the switchover to March 2021.