HKEX to Build New Settlement Acceleration Platform Using Smart Contracts

HKEX to Build New Settlement Acceleration Platform Using Smart Contracts

by November 24, 2020

Hong Kong Exchanges and Clearing Limited (HKEX) is set to introduce HKEX Synapse, a new settlement acceleration platform for its Stock Connect programme.

The Stock Connect programme is a collaboration between the Hong Kong, Shanghai and Shenzhen Stock Exchanges which allows international and mainland Chinese investors to trade securities in each other’s markets through the trading and clearing facilities of their home exchange.

Using DAML smart contracts, HKEX Synapse will standardise and streamline the post-trade workflows of Northbound Stock Connect, maximising efficiencies for market participants in a transparent, secure and reliable manner.

Asset managers, brokers, global custodians, local custodians, and clearing participants will all benefit from the improved connectivity and enhanced capacity to handle the growing volume of trades flowing through Stock Connect.

HKEX is partnering with The Depository Trust and Clearing Corporation (DTCC) to link HKEX Synapse to DTCC’s Institutional Trade Processing (ITP) services. With this integration, global investors and HKEX participants will be able to take advantage of the benefits of central matching of cross-border transactions on the Synapse platform, automating the trade confirmation and settlement notification process. Digital Asset has been selected as the vendor to develop HKEX Synapse.

HKEX Synapse will help institutional investors participating in Northbound Stock Connect to better manage their post-trade operations across different time zones, in particular with regard to adhering to the mainland securities market’s T+0 settlement cycle.

HKEX Synapse is an optional platform, and is expected to begin testing in 2021 with a group of pilot users, ahead of production deployment targeted for Q1 2022.

Charles Li, HKEX Chief Executive

Charles Li

“Synapse is our latest Stock Connect innovation and will be of major benefit to global investors when they trade through Northbound Stock Connect. Embracing new technology to further develop our markets is a cornerstone of our strategy and we are delighted to work together with DTCC and Digital Asset on this exciting new enhancement to our landmark mutual access programme with Mainland China,”

said Charles Li, HKEX Chief Executive.

Mike Bodson, President & CEO at DTCC

Mike Bodson

“We are pleased to be a part of this important effort to bring increased levels of post-trade automation and reduced risk to cross-border trade flows into China, leveraging global best practices. Our ITP services are utilized by thousands of clients around the world, and we look forward to extending the benefits of our offerings to users of the Synapse platform.”

stated Mike Bodson, President & CEO at DTCC.

Since its launch, institutional investors’ interest and participation in Northbound Stock Connect is said to have grown significantly, especially following the inclusion of China’s A-shares in major global indices. Stock Connect’s Northbound average daily turnover in the first three quarters this year reportedly has more than doubled from the same period of 2019, to a record RMB90 billion.

Mainland China’s tight settlement cycle has created the need for a more efficient settlement infrastructure, and HKEX Synapse will address this, helping investors to manage their portfolios and their risks.

Upon launch, HKEX Synapse will extend Northbound Stock Connect’s global reach via DTCC’s ITP services, currently used by more than 6,000 clients across 52 markets globally.