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HKEX Unveils ‘Synapse’ Platform Using Smart Contracts for Enhanced Equities Settlement

Hassan Shittu
Last updated: | 3 min read
Source: AdobeStock / ronniechua

On Wednesday, October 4, Hong Kong Exchanges and Clearing Limited (HKEX) introduced an upgraded version of its Stock Connect program called “Synapse.”

Synapse leverages smart contracts written in the DAML programming language to automate post-trade workflows and mitigate settlement risks, thereby enhancing operational efficiency in the equities settlement market.

This new system is set to be deployed and launched on Stock Connect on October 9, 2023. The Stock Connect program already allows Hong Kong investors to access over 1,000 Mainland Chinese stocks listed on the HKEX channel.

Notably, the Northbound Stock Connect, a component of this program, witnessed an average daily turnover of RMB 109.3 billion in the first half of 2023, marking a 5% increase from the previous year and a 50% surge from 2020 levels. This growth underscores the increasing popularity of this channel among international investors seeking access to Mainland Chinese stocks.

HKEX Introduces Synapse for Streamlined Capital Market Procedures

HKEX Synapse aims to streamline capital market procedures, offering real-time visibility and insights to all market participants. It represents an essential update for Northbound Stock Connect market participants by providing real-time data synchronization and enhanced scalability to accommodate rising trade volumes.

In a statement, Glenda So, HKEX Group Head of Emerging Business and FIC, said:

“We are delighted to launch HKEX Synapse, a major enhancement to our Stock Connect infrastructure that will support the next phase of growth for international participation in Mainland China’s equity markets.” 

Synapse, as an added feature, will extend support to institutional investors using Northbound Stock Connect, enabling them to manage their post-trade operations across different time zones efficiently. Importantly, this will be accomplished while adhering to the T+0 settlement cycle of the Mainland securities market.

HKEX remains committed to enhancing Stock Connect, ensuring it remains an efficient, accessible, and cost-effective channel for investors in both the mainland Chinese and Hong Kong capital markets. Recent upgrades to Stock Connect include the addition of up to 10 extra trading days per year, the incorporation of over 1,000 additional stocks listed in Mainland China, and the introduction of Synapse, a new settlement platform. These developments collectively contribute to a more robust and flexible investment environment.

Synapse Integration with DTCC Marks Major Leap in Cross-Border Transaction Matching

Synapse clearance with Hong Kong’s Depository Trust & Clearing Corporation (DTCC) is a significant step forward, as this connection, facilitated through the Institutional Trade Processing (ITP) service, will enable central matching of cross-border transactions. The system automatically generates settlement instructions, which are then received and processed by the Synapse platform, streamlining the trade confirmation workflow.

While these developments unfold, it’s worth noting that Hong Kong regulators are actively investigating the ongoing case of the JPEX crypto exchange, which is poised to become the largest Ponzi scheme in Hong Kong’s history, involving an estimated sum of $166 million worth of users’ funds embezzled in the attack.

Recently, JPEX announced it is moving forward with its DAO Stakeholder Dividend Plan, despite ongoing investigations into a financial scandal and related arrests. The plan allows investors to convert assets into DAO stakeholder dividends, but concerns have arisen due to a lack of clarity about the conversion process into JPEX’s own digital currency, JPC. Users are worried about the inability to withdraw these assets, as they feel their assets have become uncertain. The plan was approved with a 68% vote in favor, and JPEX has committed to distributing 49% of the stakeholder dividends, valued at $400 million.

In August, Hong Kong’s regulatory authority took a significant step by legalizing retail trading on licensed crypto exchanges. The recent unveiling of Synapse and other initiatives is indicative of Hong Kong’s rapid transformation into a prominent crypto hub. These efforts position the city as a dynamic and forward-looking player in the global crypto landscape.