HKEX Develops Blockchain Prototype for Northbound Trade Settlement

HKEX will work with Digital Asset to introduce the first blockchain platform for financial services in Hong Kong, said Charles Li in a speech at Hong Kong Fintech Week.

HKEX (Hong Kong Exchanges and Clearing) and blockchain fintech Digital Asset are teaming up to use blockchain to improve post-trade processing and settlement for international investors engaging in northbound trading via Stock Connect.

Making the announcement during Hong Kong Fintech Week on Tuesday (30 October), HKEX chief Charles Li said blockchain has the potential to alleviate post-trade operational challenges faced by market participants and global investors who trade shares on the Shanghai and Shenzhen bourses via the trading link from Hong Kong.

Currently, China’s four-hour settlement cycle for stock trades is proving problematic for many international investors, who are accustomed to T+2, or two days from trade to settlement.

Settlement can often occur during the night for some international investors, who have to decide how to allocate the trade to particular funds, and synchronise this information among other participants in the chain, including brokers, custodians and HKEX’s clearing house.

A prototype developed by HKEX in collaboration with Digital Asset explored how blockchain could enable participants to specify settlement workflows in advance to bridge time zones and synchronise the post-trade status between participants in real-time.

HKEX will now work with Digital Asset to engage market participants and gather production requirements for a post-trade allocation and settlement initiation platform.

“[HKEX] will now be working together with Digital Asset to introduce the first blockchain platform for financial services in Hong Kong,” Li said in his speech. “This could be the beginning of a long journey of innovation and revolution and we’re very excited to share this important milestone.”

The ASX (Australian Securities Exchange) is also using Digital Asset as its technology partner to replace its existing clearing and settlement system CHESS. Based on consultation feedback, however the exchange announced in September it would defer the earliest go-live date by six months to allow for additional development, testing and accreditation.

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