Home Blockchain Hong Kong Stock Exchange debuts ‘blockchain-based’ settlement system

Hong Kong Stock Exchange debuts ‘blockchain-based’ settlement system

by Abigail Bautista

HKEX, the operator of the Hong Kong Stock Exchange, has introduced an upgraded settlement platform for Stock Connect, a program that connects the exchanges of Shanghai and Hong Kong. This move aims to modernize the system of handling transactions and improve the efficiency and transparency of settlement processes.

The improved platform, called Synapse, will integrate smart contracts using DAML (Digital Asset Modelling Language), a specialized programming language developed by Digital Asset in 2016. DAML is designed to standardize and streamline post-trade procedures, making it easier for clearing agencies like HKEX to update and enhance their settlement processes.

By utilizing a language like DAML for smart contracts, Synapse can automate tasks, reduce risks, and increase efficiency and transparency in the exchange’s settlement processes. This technology-empowered platform allows for faster and more transparent settlement processes, benefiting asset managers, brokers, custodians, and clearing participants. It enables real-time data syncing to handle higher trade volumes efficiently.

Glenda So, co-head of markets at HKEX, said that Synapse will not only improve post-trade efficiencies but also build a better and stronger ecosystem, supporting market growth and investor growth strategies.

In the first half of 2023, daily trading volume for Northbound Stock Connect, which involves trades settled in Renminbi by both local and overseas investors, saw a 5% rise from the previous year and a significant 50% jump compared to 2020 levels. Synapse, offered as an opt-in service, is specifically designed to support institutional investors participating in Northbound Stock Connect and enables them to easily handle post-trade operations across varying time zones.

While HKEX did not provide specific details on how blockchain is utilized in Synapse, previous efforts have used permissioned ledgers based on proof-of-authority consensus. Other financial exchanges have also explored the use of blockchain technology to enhance their efficiency.

However, it’s worth noting that the Australian Securities Exchange (ASX) halted its blockchain system development last year after three years of effort. On the other hand, the London Stock Exchange Group has developed a new digital markets venture, positioning itself as a front-runner among prominent exchanges in embracing blockchain for trading conventional financial assets.

In conclusion, HKEX’s upgrade to Synapse and its integration of smart contracts through DAML demonstrate their commitment to modernize and improve settlement processes. This advancement enables faster and more transparent settlements, benefiting various participants in the trading ecosystem. While blockchain adoption in financial exchanges continues to evolve, HKEX’s initiative showcases the potential for technological advancements to enhance the efficiency and effectiveness of the stock market.

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