HKEX Welcomes Automation to Enhance ETP Market Liquidity
Hong Kong Exchanges and Clearing Limited (HKEX) will modernize the creation and redemption process for exchange-traded products (ETPs) through a new digital platform. It is expected in 2025. This initiative aims to streamline ETP servicing by automating in-kind creation and redemption.
Features of the Web-Based Platform
This platform automates the in-kind creation and redemption of ETPs. It offers a more efficient and streamlined experience for market participants. The platform will employ Distributed Ledger Technology (DLT) and smart contracts to connect and synchronize data among ETP participants. This integration enhances transparency. It enables real-time, secure data sharing, promoting trust and efficiency. HKEX aims to boost ETP market efficiency by automating core processes and leveraging digital technology.
HKEX’s ETP Development
2019: HKEX introduced the ICSD ETF settlement model, enhancing international settlement standards for ETFs in Hong Kong.
2020: HKEX implemented a new spread table and a continuous quoting market-making regime, supporting tighter spreads and improved liquidity.
2022: HKEX expanded the scope of its Stock Connect program to include ETFs, facilitating cross-border trading and increasing access for international investors.
Effects on Traders
This update will have these effects on users:
Faster Transactions
The in-kind creation and redemption of ETPs will be faster with the automated platform. It will reduce delays in trade execution. Users can react more quickly to market changes.
Increased Market Liquidity
The platform’s efficiency is expected to attract more trading activity. It can increase liquidity in the ETP market. Greater liquidity often leads to tighter spreads.
Lower Operational Costs
Automation of the creation and redemption process reduces manual interventions and associated costs. This cost efficiency could result in lower transaction fees.
Enhanced Transparency and Security
With Distributed Ledger Technology (DLT) and smart contracts, transactions are recorded and verified in real-time. This means greater confidence in the security and accuracy of trades.
Improved Portfolio Management
Faster, more efficient ETP transactions allow investors to adjust portfolios swiftly in response to market trends. The platform’s speed and reliability will make it easier to manage portfolios actively.
About HKEX
Hong Kong Exchanges and Clearing Limited (HKEX) is one of the largest exchange groups in the world. It provides a platform for trading various financial instruments, including equities, derivatives, and commodities. HKEX plays a crucial role in linking Chinese markets with international investors.
Summing Up
The new platform aligns with HKEX’s commitment to advancing its ETP offerings and enhancing Hong Kong’s role as a global financial center. HKEX aims to provide a more dynamic and efficient ETP market. It will foster growth and liquidity.
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