Hong Kong Exchanges and Clearing Limited (HKEX) is today (Wednesday) pleased to announce the launch of HKEX Synapse, a new integrated settlement acceleration platform that utilises the latest technology to deliver greater market efficiency and transparency. Synapse is the latest enhancement to Stock Connect, the unique mutual market access programme that connects Mainland Chinese markets with those in Hong Kong. Synapse will launch on 9 October 2023, and will deploy DAML smart contracts to standardise and streamline post-trade workflows, enhancing operational efficiencies and transparency whilst reducing settlement risks.

Synapse is part of HKEX’s ongoing commitment to the development of Stock Connect, the efficient, accessible and cost-effective channel for investors participating in capital markets in Mainland China and Hong Kong. Other recent enhancements to Stock Connect include the addition of up to 10 Stock Connect trading days per year, as well as the inclusion of more than 1,000 additional stocks listed in Mainland China and made accessible to international investors via Northbound Stock Connect.

HKEX Synapse eliminates sequential processes, offering real-time visibility and insights into the settlement process for all market participants. Asset managers, brokers, custodians and clearing participants will benefit from real-time data synchronisation and improved scalability, helping them to handle the growing volume of trades through Northbound Stock Connect. Average daily turnover of Northbound Stock Connect totalled RMB109.3 billion in the first half of 2023, up 5 per cent from a year earlier, and a 50 per cent increase from 2020 levels.

HKEX Group Head of Emerging Business and FIC, Glenda So, said: “We are delighted to launch HKEX Synapse, a major enhancement to our Stock Connect infrastructure that will support the next phase of growth for international participation in Mainland China’s equity markets. This technology-empowered platform will not only improve post-trade efficiencies, but will, over time, build a better, stronger ecosystem, supporting both market growth and investor growth strategies. We are very proud to be introducing Synapse to our market and we look forward to continuing to embrace new technologies that benefit our markets and our customers in the future.”

Available as an optional service, HKEX Synapse will support institutional investors participating in Northbound Stock Connect to better manage their post-trade operations across different time zones, in particular with regard to adhering to the Mainland securities market’s T+0 settlement cycle.

HKEX Synapse will be linked with The Depository Trust & Clearing Corporation (DTCC) through its Institutional Trade Processing (ITP) service. With this integration, global investors and HKEX participants will benefit from the central matching of cross-border transactions using DTCC’s CTM service, which will automatically generate and send settlement instructions to the Synapse platform, streamlining the trade confirmation and settlement notification process.

The European Securities and Markets Authority (ESMA) has invited market participants to provide feedback on the shortening of the settlement cycle in the European Union.

The call to evidence asks for stakeholders’ views as well as quantitative evidence “to form a better understanding of the issue and help ESMA produce an assessment of the costs and benefits linked to the potential reduction of the securities settlement cycle in the EU”.

With the US making the switch to T+1 in May next year, talk of a similar switch in the EU and the UK has been rife in industry circles – with varying levels of hospitality. Some participants hail the reduced risk that a shortened cycle would bring, while a mandate for T+1 in Europe was recently described as “absolutely wrong” by Euroclear CEO, Lieve Mostrey.

ESMA acknowledges that unlike other jurisdictions, the EU has “a complex post-trade landscape with a high number of market infrastructures (CSDs, CCPs and trading venues), several currencies, matching model, and a common settlement platform which does not support all currency denominations of the instruments traded and settled in the EU and in which not all EU CSDs participate”.

With the feedback received, ESMA said it will consider all possibilities for a shortened settlement cycle – including both T+1 and T+0. The regulator notes that any subsequent decision “needs to be based on a proper assessment of the costs and benefits that such a change would bring to all users of financial markets in the EU”.

Commenting on the opening of the call for evidence, Pete Tomlison, director of post-trade at the Association for Financial Markets in Europe (AFME), said it’s an important step in moving forward the debate on T+1 settlement.

“Moving to T+1 should not only be a question of “when”, but also “why” and “how”. It is important to ensure that any decision to shorten the settlement cycle is underpinned by a robust qualitative and quantitative analysis of the potential benefits, risks and costs, and also takes account of the unique complexities of EU capital markets.

“Any potential move to T+1 will require collaboration from a broad range of industry stakeholders, with the ultimate objective of making EU securities markets safer and more efficient.”

The watchdog will consider the feedback during the first quarter of 2024, with the intention to publish a final report in Q4 2024 at the latest.

The Financial Stability Board (FSB) today published its annual progress report on climate-related disclosures. The report has been delivered to G20 Finance Ministers and Central Bank Governors for their 11-12 October 2023 meeting.

The FSB welcomes the publication of the ISSB Standards, which will serve as a global framework for sustainability disclosures and, when implemented, will enable disclosures by different companies around the world to be made on a common basis. The FSB will work with the ISSB, International Organization of Securities Commissions (IOSCO) and other relevant bodies to promote the timely and wide use of the standards. Interoperability of the ISSB standards with jurisdictional disclosure frameworks is necessary in order to achieve global comparability of climate-related disclosures.

Meanwhile, the International Auditing and Assurance Standards Board (IAASB) and the International Ethics Standards Board for Accountants (IESBA) have made substantial progress in developing a comprehensive global set of assurance, ethics, and independence standards. The main objectives of a global assurance framework are to enhance the quality and reliability of sustainability-related information through third-party assurance. Compliance with, and enforcement of, high-quality sustainability assurance requirements could serve to deter “greenwashing”.

The report also outlines progress made by jurisdictions in promoting climate-related disclosures. It notes that all FSB jurisdictions either have requirements, guidance, or expectations in respect of climate-related disclosures currently in place, or have taken steps (for instance, made proposals) to do so.

In keeping with previous years, this year’s progress report highlights the findings of the 2023 TCFD Status Report. The TCFD Status Report, which has also been published today, reveals that the percentage of public companies disclosing TCFD-aligned information continues to grow, but more progress is needed. With the ISSB’s inaugural Standards having been released, the TCFD’s work is now complete, and the FSB has requested the ISSB to assume responsibility for monitoring progress on the state of climate-related financial disclosures by companies as of next year, which will help to support adoption of IFRS S1 and IFRS S2.

The first Digitally Native Note (DNN) has been issued under English Law via Euroclear’s Digital Financial Market Infrastructure (D-FMI). This marks the launch of Euroclear’s digital ledger technology (DLT)-powered Digital Securities Issuance (D-SI) service.

The €100 million DNN was issued by the World Bank — International Bank for Reconstruction and Development (IBRD) to support its sustainable development activities, and was listed on the Luxembourg Stock Exchange. Citi Issuer Services served as issuing and paying agent, TD Securities as dealer and Euroclear Bank as issuer central securities depository. Corda, R3’s DLT platform, underpinned the issuance.

Euroclear’s D-FMI is connected to the firm’s traditional settlement platform for secondary market operations on the DNN, allowing investors to access trading venues and liquidity management facilities. It enables the creation and settlement of DNNs on a T+0 basis, which Citi says is a step towards a fully digital end-to-end transaction lifecycle for bonds.

As part of a multi-year collaborative programme to establish a sustainable digital infrastructure for DNN issuance, this project offers a scalable model illustrating the benefits of blockchain technology within existing capital markets architecture. Existing bond accessibility and liquidity is maintained, with the benefits of digitisation having the potential to improve efficiency and growth opportunities for debt capital market participants.

Lieve Mostrey, CEO of Euroclear Group, says: "Our collaborations with Citi, TD Securities and the IBRD have been instrumental in the launch of this major innovation in asset issuance. The integration of our distributed ledger technology capabilities marks a significant milestone in the digital transformation of our global financial markets.

“Today's announcement represents a stride towards realising the potential of digital assets, underpinned by our shared commitment to pioneering innovation and delivering transformative solutions for investors and issuers on a global scale."

Jorge Familiar, vice president and treasurer at the World Bank, comments: “Since the World Bank’s first blockchain bond ‘bond-i’, debt capital markets have been moving towards digitisation, step-by-step.”

The Bank of England has published a feedback statement responding to findings of its public consultation on artificial intelligence and machine learning which was launched in October 2022.

As a foundation for this consultation process, the UK supervisory authorities — including the Prudential Regulatory Authority and the Financial Conduct Authority — published a discussion paper at this time, entitled Artificial Intelligence and Machine Learning (DP 5/22), which aims to further their understanding of how AI may impact their objectives as regulators for the prudential and conduct supervision of financial firms.

In the feedback statement, released today, these financial regulators have issued an anonymised and aggregated summary of the consultation feedback, which was received from 54 respondents spanning a wide range of stakeholders.

Among its key findings, respondents indicated in their feedback that a single regulatory definition of AI would not be useful. They highlighted use of a range of alternative, principles-based or risk-based approaches to how AI is defined and did not feel that a single regulatory definition could capture all of the relevant characteristics of AI models and the potential benefits and risks that these present.

The feedback statement highlights the importance of cross-industry engagement, including the work done by bodies including the AI Public Private Forum (AIPPF). Respondents highlighted that initiatives such as the AIPPF could serve as templates for ongoing public-private engagement.

Given the complexity of the global landscape in which AI models and AI-based technology operate, respondents highlighted the need for greater cooperation and alignment between regulators worldwide.

A primary focus of this regulatory dialogue should be on consumer outcomes, taking into account ethical implications and how the outcomes delivered by AI may impact “fairness” across economy and society.

Given these complexities, a “joined up” approach to managing and mitigating AI risks across business units and functions is important, particularly in promoting closer collaboration between data management and model risk management teams.

In terms of risk mitigation for the banking sector, respondents indicated that the principles contained in Consultation Paper 6/22, Model Risk Management for Banks, are generally sufficient to cover AI model risk. However, respondents highlighted areas where these principles could be clarified or reinforced to improve their efficacy.

At company level, respondents indicated that existing governance structures, and regulatory frameworks such as the Senior Managers and Certification Regime (SM&CR), are currently sufficient to address AI risks identified in the DP5/22 and considered by the consultation process.