The Hong Kong Stock Exchange (HKEX) has teamed up with distributed ledger startup Digital Asset to develop a blockchain platform for post-trade processing.
The two firms are exploring the development of a blockchain-powered platform for HKEX’s Northbound Stock Connect program, a spokesperson for HKEX told CoinDesk.
The news comes after HKEX revealed in March that it was looking to follow the Australian Securities Exchange (ASX) in putting settlement transactions on a blockchain-based platform. Notably, Digital Asset is also developing that platform as part of a plan to replace the ASX’s ageing CHESS clearing house system by 2021.
Launched in 2014, Northbound 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 exchanges.
Currently, investors that trade via the system are constrained by the tight settlement cycle of mainland China trades, with just a four-hour window to complete trade and settlement. Time zone differences across regions further complicate the post-trade processing.
HKEX said has already completed a functional prototype along with Digital Asset aimed to resolve these issues. The prototype allows a group of market participants to specify settlement workflows in advance and thus helps bridge time zone differences.
Additionally, the trial system enables the real-time synchronization of post-trade status between asset managers, brokers, custodians and the Hong Kong Securities Clearing Company Limited – HKEX’s securities clearing house.
HKEX said it is now planning to engage with a wider base of market participants for the next phase of the proposed platform development.
Elsewhere, a number of stock exchanges are eyeing blockchain as a means to improve clearing and settlement, and other processes, including in Singapore and India.
Just last week, Germany’s central bank, and Deutsche Börse, owner of the Frankfurt Stock Exchange, completed a blockchain trial investigating the technology’s potential in securities settlement.