In my previous article, I explained the types of digital assets and how their popularity is growing to transform the future of capital markets. In this article, I explain their growing popularity in Asia-Pacific, the regulatory steps taken by different countries, and how automation of post-trade clearing and settlement processes can further support the benefits of this growing revolution.

The Asia-Pacific (APAC) region is emerging as a powerhouse for digital asset adoption. With its tech-savvy population, innovative financial hubs, and progressive regulatory frameworks, APAC is at the forefront of integrating blockchain technologies and digital assets into mainstream finance. Yet, as the adoption grows, so do the challenges associated with post-trade clearing and settlement. Automation offers a transformative opportunity to address these issues, unlocking the full potential of digital assets in the region.

The Rising Popularity of Digital Assets in Asia-Pacific

Tech-Driven Economies

Countries like Singapore, Japan, South Korea, and Hong Kong are global leaders in fintech innovation. Their robust infrastructure and support for blockchain technology have created thriving ecosystems for digital assets, encompassing cryptocurrencies, tokenized assets, and central bank digital currencies (CBDCs).

Evolving Regulatory Landscape

Governments in APAC are adopting pragmatic approaches to regulate digital assets. For instance:

• Singapore has established clear guidelines for digital payment tokens under its Payment Services Act.
• Japan has developed a regulatory framework for security token offerings (STOs) and cryptocurrency exchanges.
• Hong Kong recently allowed licensed virtual asset service providers (VASPs) to serve retail investors, expanding market participation.

Institutional Participation

Leading financial institutions and corporations are diving into digital assets. Companies are exploring tokenized bonds, securities, and real estate, aiming to capitalize on the liquidity, transparency, and efficiency offered by blockchain.

Inclusion of Retail Investors

APAC’s digitally native population is rapidly adopting cryptocurrencies and decentralized finance (DeFi) platforms, further fuelling the growth of digital assets.

Challenges in Post-Trade Clearing and Settlement

Despite these advancements, the post-trade processes for digital assets remain a bottleneck. Current systems are burdened by:

Fragmented Ecosystems: Multiple trading venues and custodians operate in silos, complicating the settlement process.

Counterparty Risks: Decentralized finance and bilateral over-the-counter (OTC) trades expose participants to risks due to the lack of standardized clearing mechanisms.

Inefficiencies: Legacy systems, designed for traditional assets, cannot accommodate the instantaneous nature of blockchain-based transactions.

Regulatory Gaps: Cross-border transactions face compliance hurdles, given the lack of globally harmonized standards for digital assets.

The Role of Automation in Post-Trade Processes

Automation is essential for overcoming these challenges. By leveraging distributed ledger technology (DLT) and smart contracts, post-trade processes can achieve the following:

Real-Time Settlement

Blockchain’s ability to process transactions in real-time (T+0) eliminates delays associated with traditional systems. Automated settlements reduce the need for intermediaries, enabling instant transfer of ownership and funds.

Risk Mitigation

Smart contracts automate the enforcement of transaction terms, ensuring delivery-versus-payment (DvP) and reducing settlement risks. Automation also eliminates manual errors and enhances transaction security.

Operational Efficiency

Automation reduces reliance on manual processes for clearing and reconciliation, significantly lowering operational costs and time. Institutions can allocate resources more efficiently.

Scalability for Growing Markets

Automated systems can seamlessly handle the increasing transaction volumes as more participants enter the digital asset space.

Improved Regulatory Compliance

Automation simplifies reporting and compliance by providing transparent, immutable transaction records. This supports regulators in overseeing digital asset markets effectively.

Benefits of Automated Post-Trade Processes

Enhanced Liquidity

Real-time settlement improves liquidity by reducing the capital tied up during clearing and settlement. This is especially critical for APAC’s vibrant markets, where fast trading cycles are the norm.

Cross-Border Collaboration

Automation bridges the gap between fragmented markets in APAC by enabling interoperable systems, fostering seamless cross-border transactions.

Cost Optimization

Lower operational costs and improved efficiency through automation make digital assets more attractive for institutional and retail investors.

Market Integrity

Transparency and immutability offered by automated DLT systems enhance trust, reducing disputes and fostering confidence in digital asset markets.

Future Outlook

The APAC region is poised to lead the global adoption of digital assets, driven by technological innovation, regulatory clarity, and robust financial ecosystems. As automation of post-trade processes becomes more prevalent, it will catalyse the growth of digital assets, enabling financial institutions to unlock unprecedented efficiencies.

Collaboration between regulators, technology providers, and financial institutions will be crucial to creating a unified, automated post-trade infrastructure that supports the region’s aspirations.

The growing popularity of digital assets in APAC underscores the need for robust post-trade infrastructure. Automation, powered by DLT, offers a transformative solution to address inefficiencies, reduce risks, and drive market growth. As APAC continues to innovate, the integration of automated systems will not only enhance the region’s competitiveness but also set a global benchmark for the future of digital finance.

NOVA Post Trade clearing and settlement solution offers complete automation of the middle- and back-office processes facilitating near real-time settlement and clearing, crucial for the faster-paced nature of digital asset transactions. To know more about our solution, send us an email on info@contemi.com to book a demo.