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Hong Kong exchange plans smart contract solution for Stock Connect problems

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Hong Kong Exchanges and Clearing Ltd (HKEX) on Tuesday said 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.

[HONG KONG] Hong Kong Exchanges and Clearing Ltd (HKEX) on Tuesday said 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 time scale, known as "T+0", has caused problems for investors elsewhere who more usually work with "T+2", or two days from trade to settlement.

Asset managers responsible for multiple different funds who trade mainland Chinese stocks via the Stock Connect currently only have a few hours to decide how to allocate trades to their funds, and inform brokers and custodians.

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, HKEX said in a statement.

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.

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In the first three quarters of this year, average daily turnover of northbound Stock Connect trades - international investors trading Chinese shares - more than doubled versus the same period a year earlier to a record 90 billion yuan (S$18.39 billion), HKEX said when reporting quarterly earnings.

HKEX previously tried to develop a system using distributed ledger technology, or blockchain, to resolve the same problem.

It hopes to trial the new platform and its smart contracts with pilot users next year, for launch in early 2022.

REUTERS

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