HKEX seeks to bring blockchain to financial services in Hong Kong via Digital Asset partnership

Hong Kong Exchanges and Clearing Limited (HKEX) is partnering with blockchain startup Digital Asset to work on a blockchain-based post-trade allocation and processing platform for the Northbound trading under Stock Connect program.

Charles Li, the Chief Executive of HKEX, made the announcement at the Hong Kong Fintech Week.

Launched in November 2014, Stock Connect is a unique 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. The program now covers over 2,000 eligible equities in Shanghai, Shenzhen and Hong Kong.

The latest collaboration between HKEX and Digital Asset follows the successful completion of a prototype solution that aimed to accelerate the post-trade process and reduce settlement risk. The solution used the Digital Asset Platform and smart contract modeling language, called DAML.

“The project explored how DLT could enable HKEX market participants to specify settlement workflows in advance – helping to bridge time zones – while enabling real-time synchronization of post-trade status between asset managers, brokers, custodians and the Hong Kong Securities Clearing Company Limited, HKEX’s clearing house,” the announcement reads.

HKEX will now team up with Digital Asset to engage market participants and gather production requirements for a post-trade allocation and settlement initiation platform for the Northbound Stock Connect program.

Speaking at the event, Li underscored the potential of blockchain, or Distributed Ledger Technology (DLT), to alleviate the post-trade operational challenges faced by HKEX’s market participants and global investors that trade China-listed A-shares via Stock Connect due to the tight settlement cycle for Mainland China trades.

“[HKEX] will now be working together with Digital Asset to introduce the first blockchain platform for financial services in Hong Kong. This could be the beginning of a long journey of innovation and revolution and we’re very excited to share this important milestone,” Li said.