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HKEX unveils automated settlement platform for Stock Connect
Synapse seeks to improve efficiency and transparency of northbound post-trade workflows
24 Nov 2020 | The Asset

Hong Kong Exchanges and Clearing (HKEX) has introduced a new settlement acceleration platform for its Stock Connect programme. Called HKEX Synapse, the platform uses DAML smart contracts to standardize and streamline post-trade workflows for northbound Stock Connect 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 the Stock Connect, the exchange notes.

HKEX is partnering with The Depository Trust & Clearing Corporation (DTCC) to link 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.

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, according to the exchange.

An optional platform, Synapse is expected to begin testing in 2021 with a group of pilot users, ahead of production deployment targeted for the first quarter of 2022.

HKEX chief executive Charles Li comments: “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.”

Says Digital Asset co-founder and CEO Yuval Rooz: “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 synchronize 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 program 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 90 billion yuan (US$13.68 billion).

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 says.

Upon launch, 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 realizing the potential of Stock Connect for China’s A-share market, the exchange notes.