The argument between Hong Kong bourse operator and industry around blockchain

December 3, 2018

Besides undenied benefits, Blockchain network still causes many concerns. Recently, HKEX published a report showing their concerns about applying blockchain technology for securities clearance and settlement, which expected not suitable for financial market transactions.

The report titled “Financial Technology Application and Related Regulatory Framework”  published last week has questioned highlighting the industry insiders for the challenges of using blockchain in securities clearance and settlement. It has reason to worry because the bitcoin blockchain network operating over open internet, and maybe not suitable for the financial market transaction. Many industry players disagreed with this opinion and said it was comparing apple an oranges.

In China, its compulsory to register users using the real names, censor posting, and store users data for Blockchain-based information service providers.

According to Vince Lucey, managing director of innovation and change at Calastone, a provider of fund transaction services. When blockchain technology is applied to financial markets, bitcoin blockchain can experience performance and speed issues which are not related to this technology but the private, permission-based blockchains. Vince also said that the performance of these platforms would be much less of an issue if well designed.

In the view of HKEX, the application of blockchain in its securities clearing and settlement system could be drowned out with challenges due to its limitations of the technology such as handicap high-frequency traders and raise data leakage concerns.

In March this year, Charles Li, the bourse operator’s chief executive, presented his view that instead of areas HKEX’s bread-and-butter trade matching operations, blockchain is more suitable for use in stock borrowing and lending.

HKEX’s report mentioned various technical and business challenges that might need the adoption from regulators for its different ways of regulating the [exchange] business. This report did enrich knowledge about the benefits of adopting blockchain for securities clearance and settlement and also highlighted technological challenges. But, the outstanding point is that it showed the problem of bitcoin blockchains such as slow trade confirmations, low throughput, or the amount of data that can be processed per unit of time. HKEX calculated that every block is generated 6 times in one hour similar to stored 24,000 transactions. Which cannot meet the centralized and high-volume trades executed at an exchange, especially high-frequency trades.

The report said that as long as Network like Bitcoin works without data privacy, people still concern that their private data doesn’t have protection and could be stolen when they apply blockchain in their economic activities. The report highlighted that if this concerns last, exchange’s desire to use blockchain for clearing and settlement will be watered down one day soon. It cited that Securities exchanges usually keep their main source of income and profit in a securities clearing and settlement by controlling ownership

New York-based Depository Trust & Clearing Corporation, a company supplying post-trade financial services and conducting by Accenture, commissioned a separate study pointing that blockchain technology was advanced enough to support the average daily trading volume of the US equity market when it can handle more than 100 million trades per day in this month.

When HKEX is deep in their concerns if they should adopt blockchain, the Australian Securities Exchange (ASX), the country’s primary securities exchange, is preparing to apply its new private blockchain-based clearing and settlement system in the first quater of 2021, replacing its old system which exist for more than 24 years.


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