Hong Kong Stock Exchange to Open Up Mainland China Shares with Blockchain
Hong Kong Exchanges and Clearing (HKEX), the owner of Hong Kong’s stock exchangeis teaming up with blockchain startup Digital Asset Holdings LLC to develop a blockchain-based settlement platform for international investors to trade mainland Chinese stocks through the city’s Stock Connect system, its chief executive Charles Li Xiaojia said on Tuesday at the Hong Kong Fintech Week.
The proposed new system is using distributed ledger technology (DLT) to accelerate the speed and efficiency of post-trade process and lower settlement risks. The solution, which is built upon the Digital Asset Platform and uses the smart contract modeling language dubbed DAML, will improve information sharing between brokers, asset managers, custodians and the Hong Kong Securities Clearing Company Limited for cross-border trades made via the Stock Connect scheme.
The Stock Connect scheme, launched in 2014, links mainland Shanghai and Shenzhen exchanges to Hong Kong, which allows international investors to trade China-listed A-shares, the process known as “northbound” trading. The system, meanwhile, allows “southbound” access for mainland investors to buy Hong Kong-listed stocks.
But China’s same-day trading and settlement scheme, referred to as “T+0,” poses a challenge for overseas investors who are accustomed to “T+2” settlement cycle, which is two days between the trade and settlement. Offshore traders who wants to buy mainland shares but are situated in different time zones may need to require their asset managers to allocate that trade to their funds in the middle of the night.
The blockchain-powered post-trade allocation and processing platform will help bridge time zones by allowing participants to specify settlement workflows in advance. Its prototype, which has been successfully trailed by a small group of market participants, will be expanded to a larger group soon.
In 2017, the HKEX generated most of its revenue from clearing and trading fees, but now the world’s sixth-largest stock exchange is turning to innovative and nascent technologies like blockchain, artificial intelligence and big data to diversify the sources of revenue. In March of this year, HKEX was in talks with its counterpart in Australia, the Australian Securities Exchange (ASX), to learn from the latter’s experiences in settling transactions over a blockchain system.