Shalini Nagarajan

The operator of the Hong Kong Stock Exchange (HKEX) has launched an upgraded settlement platform for Stock Connect, which links the exchanges of Shanghai and Hong Kong, modernizing its system of handling transactions.



HKEX&#8217;s improved platform, called Synapse, will integrate smart contracts through the use of DAML (Digital Asset Modelling Language), a specialized programming language <a href="https://blog.digitalasset.com/blog/introducing-the-digital-asset-modeling-language-a-powerful-alternative-to-smart-contracts-for-financial-institutions">launched</a> by Digital Asset in 2016. DAML is tailored to standardize and streamline post-trade procedures.



Using a language like DAML for smart contracts can help clearing agencies like HKEX update and make their settlement processes better.&nbsp;



It is a way to modernize and improve the exchange’s settlement processes by automating tasks, reducing risks and increasing efficiency and transparency.



Synapse makes settlement processes faster and more transparent, benefiting asset managers, brokers, custodians and clearing participants by allowing real-time data syncing to handle higher trade volumes efficiently, HKEX said in a <a href="https://www.hkex.com.hk/News/News-Release/2023/231004news?sc_lang=en">statement</a> released Wednesday.



“HKEX Synapse is a DAML smart contract based integrated settlement platform that supports institutional investors participating in Northbound Stock Connect to better manage their post-trade operations across different time zones, in particular with regard to adhering to the Mainland securities market’s T+0 settlement cycle,” a spokesperson for HKEX told Blockworks.



The clearinghouse said that in the first half of 2023, daily trading volume for Northbound Stock Connect averaged RMB 109.3 billion ($15.1 billion), marking a 5% rise from the previous year and a 50% jump compared to 2020 levels.



Synapse, offered as an opt-in service, is designed to support institutional investors participating in Northbound Stock Connect, which involves trades settled in Renminbi by both local and overseas investors, allowing them to easily handle post-trade operations across varying time zones.



Other financial exchanges have explored the use of blockchain technology to enhance their efficiency, however HKEX clarified to Blockworks that its system is not based on blockchain — in contrast to an earlier <a href="https://www.hkex.com.hk/-/media/HKEX-Market/Mutual-Market/Stock-Connect/Reference-Materials/Synapse/HKEX_Synapse_Leaflet.pdf?la=en">document</a> on its website which the spokesperson explained was outdated.



<a href="https://blockworks.co/news/goldman-sachs-blockchain-canton">Similar efforts</a> have used <a href="https://blockworks.co/tag/permissioned-blockchain">permissioned ledgers</a> based on proof-of-authority <a href="https://blockworks.co/news/consensus-mechanisms-guide">consensus</a>.



However, the Australian Securities Exchange (ASX) last year <a href="https://blockworks.co/news/blockchain-not-bitcoin-is-dead-australian-bourse-cans-dlt-shift">halted</a> its blockchain system development, which was aimed at modernizing its outdated settlement layer, after three years of effort.



Meanwhile, the London Stock Exchange Group has <a href="https://blockworks.co/news/lse-group-blockchain-initiative">developed</a> a new digital markets venture, potentially positioning itself as a front-runner among prominent exchanges in embracing blockchain for trading of conventional financial assets.



Correction, October 10, 2023 at 6:50 am ET: Headline and story now reflect HKEX statements that references to blockchain in its documentation were outdated.



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Hong Kong Stock Exchange debuts new settlement system, but it’s not a blockchain

Payments giant Visa reportedly seeks to meet customer requests to convert digital assets into fiat payments, similar to how it converts foreign currencies.&nbsp;



“We’ve been testing how to actually accept settlement payments from issuers in USDC starting on Ethereum and paying out in USDC on Ethereum,” Cuy Sheffield, head of crypto at Visa, said during the StarkWare Sessions 2023 event in Tel Aviv. “So, these are large value settlement payments.”



He noted that the effort would clone foreign currency exchange executed on the card network’s payment platform.



Global settlement with digital assets and fiat currencies is an area in which <a href="https://blockworks.co/tag/visa">Visa</a> wants to build “muscle memory,” Cointelegraph <a href="https://cointelegraph.com/news/visa-s-crypto-strategy-targets-stablecoin-settlements">reported</a>, Sunday.



“The same way that we can convert between dollars in euros on a cross-border transaction, we should be able to convert between digital tokenized dollars and traditional dollars,” he said.&nbsp;



Visa didn’t return Blockworks’ request for comment by press time.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">. <a href="https://twitter.com/cuysheffield?ref_src=twsrc%5Etfw">@cuysheffield</a> and <a href="https://twitter.com/Visa?ref_src=twsrc%5Etfw">@visa</a> have fell into the rabbit hole of Account Abstraction! This is huge! <a href="https://t.co/CFniLLBq5C">pic.twitter.com/CFniLLBq5C</a>&mdash; Starknet-Ecosystem.com ✨ (@StarkNetEco) <a href="https://twitter.com/StarkNetEco/status/1622212729061646339?ref_src=twsrc%5Etfw">February 5, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
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Visa announced the use of <a href="https://blockworks.co/price/usdc">USDC</a>, a stablecoin backed by the US dollar, to settle a transaction with the network over Ethereum in March 2021.



“We’re seeing wallets and crypto native neo-banks building payment products entirely with digital currency, and we want to meet these companies where they are,” <a href="https://blockworks.co/news/visa-partners-with-50-crypto-platforms-on-card-programs">Sheffield told Blockworks</a> at the time. “The ability to make settlement payments to Visa in digital currencies could offer meaningful benefits and efficiencies, particularly for fintechs who run their business in crypto.”



Visa hasn’t yet integrated blockchain tech to support regular money movement on its network, but is currently exploring the move. Still, the company has already launched a blockchain-powered business-to-business payments network called <a href="https://www.businesswire.com/news/home/20190611005296/en/">B2B Connect</a>.



It was among the first financial companies to embrace both blockchain and cryptocurrencies. To help clients and partners explore opportunities in the space, the firm launched a <a href="https://blockworks.co/news/visa-launches-crypto-advisory-unit">crypto advisory practice</a> in late 2021.



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Visa Eyes High-Value USDC Settlement Payments on Ethereum

Ben Strack

<div id="highlights-block_61b7b42b719c2" class="highlights">
 <ul>
 <li>Both banks will use Baton Systems’ Core-FX distributed ledger technology </li>
 <li>Technology allows the bank to settle funds on-demand with HSBC in more currencies than CLS Group allows, according to co-head of macro at Wells Fargo Corporate and Investment Bank</li>
 </ul>
 
</div>



Wells Fargo and HSBC are using blockchain technology for the first time in the settlement process of cross-border payments.



The two financial services titans will jointly use a shared settlement ledger to process US dollar, Canadian dollar, British pound sterling and Euro transactions, the firms announced Monday.&nbsp;



The companies have plans to extend the platform to settle additional currencies and could choose to add more participants, introducing a central Financial Market Infrastructure provider.



The platform runs on <a href="https://batonsystems.com" target="_blank" rel="noreferrer noopener">Baton Systems</a>’ Core-FX distributed ledger technology.



Adopters of the technology are no longer restricted by currency-specific cut-off times and can agree with their counterparties on when and how often they settle. It allows for multiple settlements a day and a settlement process that can be completed in three minutes.



Riskless settlement, or payment-versus-payment (PvP) settlement, has previously only been achievable with legally enforceable settlement finality through <a href="https://www.cls-group.com/products/settlement/clssettlement/">CLS</a><a href="https://www.cls-group.com/products/settlement/clssettlement/" target="_blank" rel="noreferrer noopener"> </a><a href="https://www.cls-group.com/products/settlement/clssettlement/">Group</a>.



Market participants prefer to settle via PvP because the currencies are simultaneously settled — eliminating the risk of a firm having made a payment to a counterparty that then defaults on its obligations, said Alex Knight, head of EMEA at Baton Systems



But access to PvP settlement through CLS is restricted to CLS member firms and only available across 18 currencies, he explained.



“Today’s announcement means that all [foreign exchange] businesses can now access PvP settlement protection across all currencies,” Knight told Blockworks. “We’ve used distributed ledger technology to achieve this, delivering a level of transformation that’s well overdue.”



<h3 class="wp-block-heading">Traditional finance embracing the space?</h3>



Banks currently transmit files to CLS and then get funds settled the next day between accounts held at CLS, said Mark Jones, co-head of macro at Wells Fargo Corporate &amp; Investment Bank, adding that the funds are held up during the waiting period. 



“This new technology would allow us to settle funds on-demand with HSBC in any array of currencies we choose,” Jones told Blockworks. &#8220;[It] also provides greater visibility into transactions and funds flow because both of our operations teams at [Wells Fargo] and HSBC are utilizing the same dashboard at the same time.”



Large banks sharing technology infrastructure with shared transaction visibility is a new concept, the Wells Fargo executive added.&nbsp;



David Tawil, president of multi-strategy crypto asset fund ProChain Capital, said that banks that do not look to implement blockchain and accept cryptocurrency more broadly could be hurt over the long term.



“I know that right now it’s incredibly difficult for those banks to participate in cryptocurrency broadly because of the lack of regulation,” he said. “But certainly there should be education and development going on inside of those banks to be able to act and get involved once they are allowed to.”



Tawil argued that financial institutions should work together to figure out how they can use blockchain technology collectively to facilitate transactions and perform other processes across their systems.&nbsp;&nbsp;



“Right now the decentralized aspect of this is a runaway train without them,” he noted. “If they don’t have a pre-planned way to go ahead and transition to getting onto that locomotive, they certainly could be left behind.”



Knight said that Baton Systems is in discussions with nearly all of the large foreign exchange banks about its technology, noting that some are evaluating its impact on their businesses.



<h3 class="wp-block-heading">Continuing to adopt</h3>



Mark Williamson, global head of FX partnerships and propositions at HSBC, said in a statement that the firm will continue to grow its FX Everywhere network, which has settled roughly 3 million intra-bank trades worth about $2.5 trillion since it launched in 2018. 



HSBC also intends to position itself to be able to transact in new forms of regulated digital currencies, such as central bank digital currencies (CBDCs), he added.



Wells Fargo labeled cryptocurrencies as a “viable investment asset” <a href="https://www.wellsfargoadvisors.com/research-analysis/reports/rationale-cryptocurrencies.htm" target="_blank" rel="noreferrer noopener">in a report</a> published earlier this year. It noted that crypto could see continued growth, further compression in price volatility and a possible role as portfolio diversifiers over the long term.



“We are now utilizing blockchain technology, and expect that trend to continue to grow,” Jones told Blockworks. “As it relates to the crypto ecosystem, it’s clearly evolving fast and we are paying close attention to how the regulatory structure unfolds around it.”



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