HKEX Synapse Revolutionizes Stock Connect With Blockchain Integration

1. HKEX Synapse enhances Stock Connect with blockchain for efficient post-trade processes and reduced settlement risks.
2. Synapse offers standardized settlement workflows and simultaneous instructions, connecting traders from different markets seamlessly.
3. Stock Connect’s 2023 turnover increased 5% YoY, highlighting its growth, while ASX explores blockchain for CHESS replacement.

The Hong Kong Stock Exchange is enhancing its Stock Connect system, a platform that connects Hong Kong’s stock markets with those in mainland China, through the integration of blockchain technology. As outlined in a press release, the improved Stock Connect, known as Synapse, will incorporate smart contracts to streamline post-trade processes and minimize settlement risks.

According to a technical pamphlet, HKEX Synapse offers a standardized and centralized platform that produces a unified and authoritative source for settlement instruction workflows. This functionality allows for the enhancement of trades through the inclusion of Standing Settlement Instructions from DTCC’s central matching solution, CTMTM. Moreover, Synapse has the capability to generate settlement instructions for all participants in the settlement chain simultaneously. This enables concurrent processing and offers nearly instant status updates to all stakeholders engaged in the trade, a crucial feature when connecting traders from two distinct markets.

The HKEX Synapse solution intends to standardise settlement workflows and in doing so will provide greater efficiency and transparency to Stock Connect’s market participants, while connecting them to a more seamless post-trade workflow.

HKEX Synapse

In the first half of 2023, the Stock Connect system recorded an average daily turnover of $15.302 billion (equivalent to 109.3 billion RMB), marking a 5 percent increase compared to the previous year and a significant 50 percent rise from the levels seen in 2020.

Furthermore, in Australia, the Australian Financial Review reported last year that the ASX has received recommendations to embrace blockchain technology as a replacement for its settlement system, known as CHESS. According to the announcement, in Germany and Hong Kong, market operators are making use of technology from Digital Asset, the same company that provides software to ASX. However, unlike ASX’s all-encompassing approach, they are applying this technology to address specific issues within smaller, specialized markets initially.