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Financials

UPDATE 1-Hong Kong exchange plans smart contract solution for Stock Connect problems

(Adds quotes from HKEX exec)

HONG KONG, Nov 24 (Reuters) - Hong Kong Exchanges and Clearing Ltd (HKEX) said on Tuesday it will introduce a new platform with so-called smart contracts to resolve long-standing inconveniences for overseas investors trading Chinese shares via its Stock Connect scheme.

China’s same-day trading and settlement timescale, known as “T+0”, has caused problems for investors elsewhere who more often work with “T+2”, or two days from trade to settlement.

International asset managers and brokers have had to create bespoke, often manual, processes to trade Chinese shares though Stock Connect, which has deterred some from using the scheme.

Asset managers responsible for multiple different funds who trade via Stock Connect must also rush to allocate trades to their funds, and inform brokers and custodians.

The new platform aims to standardise the post-trade process which “should eliminate inefficiencies and mean some participants that currently can’t use Stock Connect are able to,” said Gerard Smith, HKEX head of post trade product development.

The new approach uses smart contracts - protocols which automatically execute pre-agreed conditions written in computer code - to synchronise information across market participants in real time.

Stock Connect, which links Hong Kong with the Shanghai and Shenzhen stock exchanges, is one of the most popular and efficient ways for international investors to trade mainland stocks.

In the first nine months of this year, average daily turnover of northbound trades - international investors trading Chinese shares - was a record 90 billion yuan ($13.68 billion).

HKEX previously tried to develop a system using distributed ledger technology, or blockchain, to resolve the same problem, but Smith said the bourse found it can “create the same value by simply using smart contracts”.

The exchange hopes to trial the new platform with pilot users next year, for launch in early 2022. ($1 = 6.5809 Chinese yuan) (Reporting by Alun John; Editing by Christopher Cushing and Ana Nicolaci da Costa)

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