Charles Li, CEO, Hong Kong Exchange and Clearing

In what may well be inspired from the NASDAQ LINQ, the Hong Kong Exchanges and Clearing (HKEX) announced its plan to adopt blockchain to keep track of all private investors in startup companies in a new Hong Kong private market.

At the HKEX annual media luncheon held last month on 19 January, HKEX CEO Charles Li (pictured) announced that the company would within the next few years launch a new Hong Kong Private Market. This will provide a market for the registration, certification, and transfer for startup companies. It will not, however, be a regulated market.

“We want to use this private market to attract all early-stage companies to register and to put them into HKEX’s private market system,” Li told the media.

“The Hong Kong private market is going to be blockchain technology-enabled,” said Li. He added that the use of blockchain technology will allow HKEX to build an ecosystem of emerging, new-economy, and new technology companies.

At present, the HKEX is formulating proposals regarding the requirements on investor eligibility, and initial and ongoing listing, as well as measures to protect investors. HKEX will also conduct a consultation later on.

Clean record of startup investors

Under the new Hong Kong Private Market, HKEX can offer valuable services to startup companies in an organized and low-cost manner, ranging from company registration, share certificate, transfer and some other corporate actions, Li said.

The Market will also provide a service to protect the private investors’ interests in the startup companies.

Today, venture capitalist investors make diverse investments in different sorts of companies. While some of the startups succeed, some might fail. “For the failed companies, they might have struggle for two to three years before they eventually failed. But by the time the startups actually fail, the investors might already have forgotten about their previous investment in these companies. If these companies eventually get transferred to or acquired by other companies, these initial investors might have forgotten where their papers were,” Li suggested.

Using blockchain, HKEX aims to create a centralized system to consolidate the investors’ information, so that there is a clean record of all shareholders, which forms “an irreversible record of ownership of share transfer records,” in the words of Li.

Protect investors of delisted companies

According to Li, HKEX is considering to launch a new board for emerging, new-economy companies, other than the Main Board and the Growth Enterprise Market (GEM) Board, but this still at conception stage.

With blockchain, HKEX also hopes to provide better protection to investors in companies which are subsequently delisted from this new board.

According to Li, even if the new board has aggressive de-listing companies for those that “do not work,” it will protect the investors who have already been investing in those companies. “As HKEX wants to make sure the delisted companies move back to the private market, the use of blockchain can provide a clear track record of ownership of the companies in the private market, including transfer and everything else.”

First published on Computerworld Hong Kong