HKEX Launches 'Synapse' : Blockchain-based Settlement Acceleration Platform

The Hong Kong Stock Exchange (HKEX, or variably called Hong Kong Exchanges and Clearing Limited, its operator and proprietor) is set to enhance its Stock Connect system, which links Hong Kong's stock markets with mainland China, using blockchain technology. The upgraded platform will incorporate smart contracts to facilitate post-trade workflows and reduce settlement risk.

Dubbed HKEX Synapse, the project is an integrated settlement acceleration platform designed to boost market efficiency and transparency. Synapse is an extension of Stock Connect, a mutual market access program connecting Mainland Chinese markets with those in Hong Kong.

On the technical side, the Synapse platform leverages DAML (digital asset modeling language, a type of imperative programming language derived from functional languages such as C++) smart contracts to standardize and streamline post-trade workflows, enhancing operational efficiencies, the effective reduction of settlement risks for optimal trading.

Synapse has the ability to simultaneously create settlement instructions for all parties involved in the settlement process, providing real-time updates. This feature is crucial for connecting traders in two distinct markets.

The average daily turnover of the Stock Connect reached $15.302 billion (109.3 billion RMB) in the first half of 2023, indicating a 5 percent incrdease from the previous year and a significant 50 percent rise from 2020 levels.

According to a press release distributed for HKEX, Synapse eliminates sequential processes, offering real-time visibility and insights into the settlement process for all market participants. It will enable asset managers, brokers, custodians, and clearing participants to better handle the increasing volume of trades through Northbound Stock Connect.

HKEX Synapse is set to launch on October 9, 2023, providing institutional investors participating in Northbound Stock Connect with improved post-trade operation management, particularly regarding the Mainland securities market's T+0 settlement cycle.

This move positions HKEX at the forefront of blockchain integration in traditional financial systems, underlining the broader trend of financial markets increasingly adopting blockchain technology to enhance efficiency and transparency. This is a key innovation in the context of increased crypto adoption specifically in Hong Kong, which launched Asia's first crypto futures ETFs in Q4 2022. Major crypto firms have also been eyeing Hong Kong with its efforts at becoming a crypto business hub, with the country's crypto regulatory frameworks now being set in motion.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.