Exploring the Future of Markets: Part 3 – More Open and Cloud-based
Aug 23, 2022
10 mins

In June 2022, as HKEX marked its 22nd anniversary as a listed company, we sat down with senior executives from across the business to reflect on the progress of our organisation over the past two decades, and explored the key drivers and trends impacting our markets and the global exchange landscape.

Data, ESG, technology and clients were the four themes that jumped out. In the first two parts of this “Future of Markets” series, we explored how data will become richer and more integrated into trading systems; and how corporates are increasingly needing to “walk the walk” on ESG as this becomes part of the DNA of our markets.

In the third part of this series, we take a closer look at how new technological trends, such as cloud computing and open application programming interfaces (APIs), are reshaping the underlying infrastructure of financial markets.

No technology, no markets

Like other industries, technology has had a profound impact on the way people invest and trade, and how financial markets operate. Everything from placing orders and making investments, to raising money and restructuring debt, is done via electronic means – a long way from the scenes of people shouting out buy and sell orders that characterised the open-outcry seen on the floors of stock exchanges across the globe a century ago.

“Sometimes we think of ourselves as a technology business because today, our whole business is built on technology and we could not run it and provide the essential data, trading, clearing and settlement services that the market needs without it,” explains Chief Technology Officer, Richard Leung. “Over the years, we’ve harnessed the power of software engineering to make our systems as fast as possible, chasing every microsecond of latency, facilitating machine-driven trading algorithms, and supporting the super-fast speeds that our clients demand. All with state-of-the-art oversight, surveillance and monitoring. Needless to say, technology is a crucial part of the financial market infrastructure.”

While technology will undoubtedly continue to alter how investments, trading and financial markets are conducted, the future landscape is convoluted, with a myriad of innovations impacting products, services and operations. Here, we look at the next wave of technologies that no doubt will have a profound impact on the future of the infrastructure of financial markets, from the way markets are conducted to the increased functionality and services market participants will get from exchanges. So what will that look like?

The “open banking concept” will be increasingly applied to financial market infrastructure.

“In many ways, exchanges are where banks were ten years ago. For example, if a customer wants to inquire on their data and positions in a clearing house, they have to use our protocols, interfaces and our way of messaging,” explains Head of Innovation and Data Lab, Lukas Petrikas.

But if we embrace the open banking model, customers will be able to pull data from our core infrastructure through other apps and platforms, perhaps at the same time accessing multiple systems all around the world – giving them more flexible access, or just consolidating their oversight.
   Head of Innovation and Data Lab, Lukas Petrikas

As banks opened up certain APIs to fintech firms and allowed them to access customers’ account balances, credit card transactions and other statistics, this has enabled the emergence of new services such as digital wallets, robo-advisory and wealth management apps, enhancing the overall personal banking experience. In the exchange industry, similar trends have enabled the development of online brokerages that connect directly into stock market matching engines and real-time data feeds. However, this ease of connectivity does not yet extend to other parts of the capital markets value chain.

“We are already partly there in pre-trade services, with brokers and trading apps pulling data from our platform, but the shift to open architecture will happen elsewhere too – think collateral, margin, money settlement and other downstream activities from the trades themselves,” adds Lukas.


Post-trade services in particular will get a revamp, taking inspiration from decentralised finance.

One such area where we see a big shift happening is in post-trade services. Here, exchanges will have to decide whether they are comfortable with taking inspiration from decentralised finance concepts to influence their core financial processes.

The best way to illustrate it is through an example: say a bank does a trade with an asset manager. That trade is in the marketplace and goes to the global custodian for settlement. The global custodian talks to the sub-custodian who reports back to the clearing house. It’s all very sequential and centralised today. But in the “decentralised” world of tomorrow, all parties would get the same message at the same time, and handle that message in a mutually predictable and transparent way.
  Co-Chief Operating Officer, John Buckley

This has the effect of improving market transparency, efficiency and most importantly, lowering the cost of both capital and transacting, which is key to maintaining an attractive marketplace. It is how some crypto exchanges operate today, where transactions are facilitated peer-to-peer without an obvious intermediary. While those exchanges don’t benefit from high levels of regulatory oversight and investor protection that traditional exchanges provide, they offer unique lessons for global market operators on how technology can benefit all market stakeholders.

“One of the most innovative aspects of crypto technology is real-time alignment through smart contract capabilities between various constituents. Traditional technologies can, of course, let everyone learn about a particular event – let’s say a dividend announcement – at the same time, but what is ultimately underpinning decentralised finance and its relevance for exchanges is the subsequent ability to codify how everybody responds to and processes that event in a synchronised way across the whole market,” adds John.


The adoption of cloud will also gain momentum – and move closer to core infrastructure.

“With exchanges, we are seeing more adoption of cloud computing – and its use is becoming closer and closer to core infrastructure,” explains Richard. There are clear advantages to operating on-demand. For one, it allows for greater flexibility and deployment agility. For example, if exchanges want to test a new system, they can build the test environment more easily and cost-effectively with a cloud provider and close it down once they’re done with it.

“So the cloud gives you a much more flexible and nimble infrastructure than an on-premise solution. And critically, having that flexibility allows you to move super quickly to align with the evolving needs of your clients,” adds Richard.

That said, it is not all straightforward. Use of the cloud does present unique challenges – such as the potential for inconsistent latencies in the delivery of services depending on where clients are in relation to the location of the cloud engine. This could give an advantage to one client in one location relative to another, which could cause problems in the fast-paced environment of financial markets. But this doesn’t mean that technology can’t resolve this problem overtime – it’s a question of “when”, not “if”.

“While some peripheral services already run on the cloud, critical market infrastructure hasn’t got there yet. But it doesn’t mean that we won’t get there.  When we talk to cloud providers, they are absolutely focused on finding solutions to allow for core market infrastructure to be migrated – and we can see that it is going to be a key partnership for us,” adds Richard.

While some peripheral services already run on the cloud, critical market infrastructure hasn’t got there yet. But it doesn’t mean that we won’t get there.  When we talk to cloud providers, they are absolutely focused on finding solutions to allow for core market infrastructure to be migrated – and we can see that it is going to be a key partnership for us.
   Chief Technology Officer, Richard Leung

The future is not so distant

The fact is that these technological trends are already in train. HKEX, for example, is focused on its launch of Synapse – which will integrate smart contract language into the post-trade settlement platform for the exchange’s Northbound Stock Connect channel between Hong Kong and Mainland China. This is decentralised finance in action. And we are making major inroads in cloud adoption too, as HKEX readies for the launch of a new platform for IPO settlement later in 2023 – Fast Interface for New Issuance (FINI) – which will run on the cloud.

These are progressive technologies and we predict that exchanges will continue to do a lot more with them. This too won’t be about competitive advantage but ensuring that an exchange keeps up with the pack, maintaining an attractive and vibrant marketplace and meeting customer expectations and needs.

 “What you see in markets is that innovation tends to lead regulation,” says John. “Regulation will eventually catch up, but if we’re not taking on board these technologies and seizing the capabilities and opportunities brought by them, then potentially one day exchanges will become obsolete. We are not daunted by this however, but excited about the possibilities ahead. What other industry presents so many opportunities!”