HKEX to expand post-trade infrastructure with cross-border custody focus

The plan was highlighted as one of HKEX’s top strategic priorities in order to cater for the needs of Mainland China and international investors.

By Joe Parsons

The Hong Kong Exchange and Clearing (HKEX) is planning to expand its post-trade infrastructure, with a focus on improving cross-border custody and settlement processes.

The plan was highlighted as one of HKEX’s top strategic priorities, which it presented to journalists on Thursday, in order to cater for the needs of Mainland China and international investors.

It will involve “[exploring] the development of Hong Kong as an international custody hub to enhance cross-border trading and support Mainland investors’ increase outbound investment in Hong Kong and beyond.”

Charles Li, CEO of HKEX, said on the presentation: “If we want global liquidity, we have to do a lot to our market structures to make sure we are more competitive, we are cost effective, and we are easy for people to access that market.

“This post-trade infrastructure is something new we are going to be building. This is  the custody of all securities. If all of these different capital flow works, we will increasingly become a case where securities need to be custodised and secure. When you have them all in one place, you can use them to pay margins, collateral management, and capital efficiency.

“Whoever controls those large activities has to be nation time-zone, has to be controlled, and we want to make sure we begin to build that.”  

Hong Kong’s financial regulators have made a number of enhancements, alongside its Mainland counterparts, to improve cross-border post-trade processes. In August last year, China’s main central securities depository (CSD) went live with delivery verses payment (DvP) settlement for transactions on Bond Connect, the cross-border fixed income trading platform.

Li added on the presentation it also plans to expand its custody and collateral management solutions for its fixed income platform to improve capital efficiencies for foreign investors.

HKEX has already undertaken a number of initiatives to improve post-trade processes for its Stock Connect programme, including a partnership with blockchain specialist Digital Asset, in which it would use the technology to help complete post-trade allocations and processing for Northbound trades within a tight settlement window.

In December, it also hired Citi’s former head of securities services for Hong Kong, Cindy Chen, to lead its post-trade business development activities.

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