HKEX Uses Smart Contracts To Accelerate Settlement
- HKEX Synapse will automate and streamline post-trade processes, underpinning the growth of global investors accessing the Mainland China market via Stock Connect
- Targeting production in Q1 2022, HKEX Synapse will improve the efficiency and transparency of Northbound Stock Connect settlement for institutional investors
Hong Kong Exchanges and Clearing Limited (HKEX) is pleased to introduce HKEX Synapse, a new settlement acceleration platform for its landmark Stock Connect programme.
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 & 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.
— DAML (@DAMLdriven) November 24, 2020
“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.
“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,” stated Mike Bodson, President & CEO at DTCC. “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.”
“HKEX is raising the bar for securities markets worldwide,” said Yuval Rooz, CEO & Co-founder, Digital Asset. “HKEX Synapse solves a major business problem for capital markets that legacy message-based approaches have not been able to address. Synapse uses DAML smart contracts to automate, update and synchronise information across the market in real time – ensuring errors can be caught, exceptions can be handled and that HKEX Northbound Stock Connect can continue to grow at the pace the market demands.”
DAML is a type of programming language used to build smart contracts. A smart contract is a computer programme or a transaction protocol which is intended to automatically execute, control or document relevant events and actions.
Since its launch, institutional investors’ interest and participation in Northbound Stock Connect has 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 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.
By deploying DAML smart contracts , HKEX Synapse will be able to simultaneously create settlement instructions and provide status updates to all parties along the settlement chain, facilitating concurrent processing and greatly improving transparency for market participants. 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.
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, further realising the potential of Stock Connect for China’s A-share market.
Details of the HKEX Synapse are available on the HKEX website.
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