Yesterday Hong Kong Exchanges and Clearing Limited (HKEX) announced that it’s partnering with Digital Asset to use blockchain for post-trade processing and to reduce settlement risk. This follows the successful completion of a prototype.
HKEX is trying to solve an issue that’s very specific to Hong Kong. In most jurisdictions settlement takes two days, whereas in mainland China it takes four hours. HKEX’s Stock Connect system enables international investors to trade mainland China shares, referred to as “northbound” trading.
The problem is that settlement happens in the middle of the night for some of these international investors. And asset managers have to decide how to allocate the trade to particular funds. Based on that decision the information needs to be synchronized with other participants such as brokers, custodians, and HKEX’s clearing house.
The Digital Asset prototype aimed to find out if these settlement workflows could be decided in advance. Potentially a smart contract can trigger the desired allocation.
During a speech at the Hong Kong Fintech week, Charles Li HKEX’s CEO said: “[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.”
Digital Asset is involved in the major overhaul of the Australian Securities Exchange‘s CHESS settlement system. The project is at an advanced stage and aims to launch in 2021.
The company’s technology includes a custom smart contract modeling language called DAML. The Digital Asset protocol was also subject to recent third-party tests by both the DTCC and GFT which showed the technology is capable of more than 27,000 trades per second (in the GFT test). The figure equates to 81,000 DLT transaction updates. Additionally, Digital Asset was involved in a successful Deutsche Börse test.