How DLT can reshape financial market infrastructure
Stock markets around Asia-Pacific have started to examine the emerging technology tool
27 Nov 2020 | Darryl Yu

Aside from being the underlying technology for cryptocurrencies such as Bitcoin and Ethereum, distributed ledger technology (DLT) is increasingly being looked at as a technology tool for revamping outdated financial market infrastructure.

Amid the disruptions caused by the Covid-19 pandemic, the Asian financial hubs of Hong Kong and Singapore are exploring the positive impact that DLT could have on stock exchanges. Hong Kong Exchanges and Clearing (HKEX) this week announced the launch of HKEX Synapse, a platform based on DLT that uses smart contracts to standardize and streamline post-trade workflows for northbound Stock Connect trades.

Singapore Exchange (SGX) on September 2020 executed its first DLT-based digital bond issuance for Olam International together with HSBC. Not only was it Asia’s first digital bond but also, more importantly, it streamlined the whole bond issuance process using smart contracts to easily capture the rights and obligations of parties involved in the transaction.

SGX has been vocal about using DLT for its internal processes. In 2019, SGX and financial messaging services provider SWIFT were already working on an e-voting solution to help shareholders avoid being shut out of corporate decision-making due to a paper-based voting process.

In addition to opening up market access, DLT’s core advantage for financial markets is its ability to provide transparency and speed up the process of settlement for all ecosystem players. In Olam International’s pilot digital bond, for example, primary issuance settlement was reduced from five days to two days.

While there is positive sentiment towards incorporating DLT into financial market infrastructure, successful execution of such projects is another matter.

The Australian Securities Exchange (ASX), which was planning to replace its CHESS equities clearing settlement system with a DLT-based system, hit a snag earlier this year as the coronavirus started to spread around the world and heightened market volatility. According to the ASX, the new target for launching the DLT system would be around April 2022 subject to feedback from stakeholders. 

The Asset Events+ is hosting a high-level conversation on Digitalization: The Future of Investing on 30 November 2020 at 5pm HK time where thought leaders from asset management companies, securities services and technology providers and market infrastructure will discuss issues around automation, DLT, and how the industry is likely to transform into the future. For more information and to join, please click here.