Hong Kong bourse operator says blockchain inadequate, industry disagrees

Industry insiders have questioned a report highlighting the challenges of using blockchain for securities clearance and settlement, published by bourse operator Hong Kong Exchanges and Clearing last week.

According to them, the report – titled “Financial Technology Application and Related Regulatory Framework”– produced by the office of HKEX’s chief economist as well as its innovation lab, cites concerns based on the bitcoin blockchain network, which operates over the open internet and is well-recognised as ill suited for financial market transactions. Some industry players even said the report was comparing apples and oranges.

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Vince Lucey, managing director of innovation and change at Calastone, a provider of fund transaction services, said the bitcoin blockchain can experience performance and speed issues and is most likely to be irrelevant when blockchain technology is applied to financial markets, as these are likely to be private, permission-based blockchains instead.

“The performance of these platforms, if well designed, will be much less of an issue,” he said.

HKEX had said in its report the application of blockchain in its securities clearing and settlement systems would be mired with challenges, as the limitations of the technology were likely to handicap high-frequency traders and raise data leakage concerns.

In March this year, the bourse operator’s chief executive, Charles Li, said he saw blockchain as more suited for use in stock borrowing and lending, rather than in areas that would affect HKEX’s bread-and-butter trade matching operations.