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

The operator of the Hong Kong Stock Exchange (HKEX) has launched an upgraded settlement platform for Stock Connect, which links the exchanges of Shanghai and Hong Kong, modernizing its system of handling transactions.

HKEX’s improved platform, called Synapse, will integrate smart contracts through the use of DAML (Digital Asset Modelling Language), a specialized programming language launched by Digital Asset in 2016. DAML is tailored to standardize and streamline post-trade procedures.

Using a language like DAML for smart contracts can help clearing agencies like HKEX update and make their settlement processes better. 

It is a way to modernize and improve the exchange’s settlement processes by automating tasks, reducing risks and increasing efficiency and transparency.

Synapse makes settlement processes faster and more transparent, benefiting asset managers, brokers, custodians and clearing participants by allowing real-time data syncing to handle higher trade volumes efficiently, HKEX said in a statement released Wednesday.

“This technology-empowered platform will not only improve post-trade efficiencies, but will, over time, build a better, stronger ecosystem, supporting both market growth and investor growth strategies,” Glenda So, co-head of markets at HKEX, said in a statement.

The clearinghouse said that in the first half of 2023, daily trading volume for Northbound Stock Connect averaged RMB 109.3 billion ($15.1 billion), marking a 5% rise from the previous year and a 50% jump compared to 2020 levels.

Synapse, offered as an opt-in service, is designed to support institutional investors participating in Northbound Stock Connect, which involves trades settled in Renminbi by both local and overseas investors, allowing them to easily handle post-trade operations across varying time zones.

HKEX did not elaborate on precisely how a blockchain is used in Synapse, who operates the nodes or how many there are. Blockworks contacted the exchange for clarification.

Similar efforts have used permissioned ledgers based on proof-of-authority consensus.

Other financial exchanges have explored the use of blockchain to enhance their efficiency. 

However, the Australian Securities Exchange (ASX) last year halted its blockchain system development, which was aimed at modernizing its outdated settlement layer, after three years of effort.

Meanwhile, the London Stock Exchange Group has developed a new digital markets venture, potentially positioning itself as a front-runner among prominent exchanges in embracing blockchain for trading of conventional financial assets.

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