Nasdaq and Hong Kong exchange sharing information on blockchain technology

Hong Kong Monetary Authority is already planning an innovation hub that will test blockchain and distributed ledger solution

PUBLISHED : Tuesday, 11 October, 2016, 2:04pm
UPDATED : Tuesday, 11 October, 2016, 10:42pm

The Nasdaq stock market is hoping to bring its blockchain technology to the Hong Kong Stock Exchange, according to its president and chief operating officer Adena Friedman.

In the city on Thursday and Friday last week to meet with clients, Friedman said working on blockchain with the Hong Kong exchange was a priority for the New York-based Nasdaq , after it launched its new platform in May, although a spokesman could not confirm which of its clients had already begun incorporating the new technology.

Blockchain records transaction data in a way that prevents duplications and lowers the risk of certain kinds of fraud. Logged entries, for example, cannot subsequently be rewritten or the dates changed.

Beyond its applications in the banking industry, the technology can be harnessed to verify people’s identities.

The Hong Kong Monetary Authority (HKMA) last month said it plans to launch an innovation hub that will test blockchain and distributed ledger solutions.

It said it had begun work on the initiative with the Hong Kong Applied Science and Technology Research Institute, an initiative founded by the government to enhance its competitiveness in technology. The HKMA is setting up a FinTech Innovation Hub and a FinTech Supervisory Sandbox, initiatives aimed at spurring banks to embrace technology to make financial transactions safer, speedier and more convenient for consumers.

Ten major stock and commodities exchanges around the world have begun testing blockchain technology, including the Australian Securities Exchange, London Stock Exchange, and Nasdaq, which enables the transfer of securities in the private market.

“Our technology allows them to grow and leverage blockchain if they choose to,” Friedman told the Post.

“The [Hong Kong markets] can use ours or they can use someone else’s – we’re agnostic to that in terms of how the technology is created.”

She said blockchain was generally being implemented in unregulated over-the-counter instruments, that are traded on a dealer network rather than on a centralised exchange.

“It enables really illiquid assets to be traded more freely and more efficiently, to not have to sit there and hold contracts on someone’s desk, but to put things online. It’s not starting yet in the regulated exchanges for the most part,” Friedman said.

A Hong Kong Stock Exchange spokesman confirmed the bourse was monitoring blockchain developments, and evaluating potential opportunities arising from the developments.

[Blockchain] enables really illiquid assets to be traded more freely and more efficiently, to not have to sit there and hold contracts on someone’s desk, but to put things online
Adena Friedman, president and chief operating officer, Nasdaq

Simmons & Simmons partner Jolyon Ellwood-Russell said the opportunities for the technology were vast, allowing exchanges to dispense with intermediaries or eliminate various inefficiencies.

“There is no doubt that they should be looking at blockchain technology,” he said. “However, what they are also right to do is be cautious.”

“The paradox is the idea they’re trying to create efficiency that will make things cheaper with no need for intermediaries, so we can all deal directly with each other. But on the other hand, everyone is trying to profit off it.”

He didn’t think Hong Kong was falling behind the pack or being held back by the regulatory environment, but said building up trust for the technology was one of the issues.

“Blockchain is new. You cannot just do it, you need to understand the technology. The processing power at the moment is just far too slow – the stock exchange would just freeze,” Ellwood-Russell said.

Henri Arslanian, an adjunct associate professor at the University of Hong Kong where he teaches Asia’s first FinTech university course, said many exchanges globally were looking at blockchain and had launched proof of concepts that looked good from a public relations perspective.

“The real question is when the next concrete steps will take place and that nobody really knows.”

business-article-page