Citi-Asia-puts-its-foot-on-the-gas

Asia puts its foot on the gas 4 Asian FMIs embrace DLT “FMIs in Asia have an impressive record of innovation and reform, with a number of ambitious upgrade programmes being rolled out,” said Bryan Murphy, Global Head of Intermediaries Client Coverage at Citi. In addition to FMIs in markets such as Hong Kong, Taiwan, Japan and New Zealand implementing platform upgrades, a number of infrastructures are also starting to leverage disruptive technologies such as distributed ledger technology (DLT). DLT is being used extensively across a number of major regional markets to improve the investment process and A number of other domestic regulators have also taken a keen interest in digital assets. The People’s Bank of China is widely considered to be a global leader in central bank digital currencies, namely central bank issued crypto-currencies, having concluded a pilot project developing its very own digital Yuan. While Asian markets have made remarkable progress integrating digitalisation into post-trade, some of the technologies do pose practical problems. “T+0 immediate atomic trading and settlement is a challenge which the industry needs to overcome. Most markets currently settle on T+2 , but a shift to T+0 would require counterparties to pre-fund their trades leading to potential liquidity problems. Clients, however, could have the option to rely on their custodians’ balance sheets,” said Mishra. Other logistical issues exist too, not least the difficulties involved in existing post-trade operating model. “Technology such as shared ledgers can ensure that golden source data is disseminated and distributed along the value chains in a controlled and permissioned manner,” explained Ryan Marsh, Global Head of Distributed Ledger Technology & Digital Innovation at Citi. The expectation is that this will improve efficiency by increasing the speed and integrity of data, synchronising activities, removing duplication and reconciliation, and reducing risk. As a result, DLT could help markets shorten the investment and settlement cycle, potentially achiev ing immediate settlement at the point of trade. assimilating DLT into existing, legacy technologies, a process which could be incredibly risky if executed badly. Most significantly, the absence of common industry-wide standards has resulted in a number of different Blockchain protocols emerging, which will be problematic for market participants when trying to interoperate with each other’s systems. “Just as we have developed common standards for financial messaging, we must reach a consensus on DLT,” commented Marsh. The same impediments ring true for digital assets. Without standards or a common regulatory approach towards supervising digital assets, these instruments may struggle to attract investment. The Australian Securities Exchange (ASX) announced in 2015 that it would replace its CHESS equity clearing and settlement system with DLT. However, COVID-19 and its subsequent impact on trading volumes prompted ASX to delay the release until April 2023. 2 2015 Singapore is also finding pioneering use cases for DLT and increasingly digital assets. In 2018, the Singapore Exchange (SGX) utilised DLT to support delivery-versus-payments for digital assets as part of its Project Ubin programme. SGX also leveraged its DLT-enabled digital asset issuance platform to issue its first ever digital bond. 2018 DLT is also attracting interest in Malaysia. Bursa Malaysia, the country’s stock exchange, announced in 2019 that it had completed a successful proof of concept using DLT to support its securities lending programme. Malaysia’s Securities Borrowing and Lending (SBL) pool will help drive transparency in the domestic securities lending market by providing transactional data to users through a permission-only DLT solution. 2019 Hong Kong has also made inroads with DLT. In November 2020, HKEX launched its Synapse Platform in what should help facilitate settlement efficiencies on the Northbound leg of Stock Connect. The technology will primarily help investors adhere to mainland China’s T+0 securities settlement cycle. Using DAML smart contracts, HKEX Synapse will standardise and streamline the post- trade workflows of Northbound Stock Connect. Asset managers, brokers, global custodians, local custodians, and clearing participants will all benefit from the improved connectivity and enhanced capacity to handle the growing volume of trades flowing through Stock Connect, according to HKEX. 3 2020 2 Global Custodian 3 HKEX -https://www.hkex.com.hk/News/News-Release/2020/201124news?sc_lang=en