“Behind each of those machines is a human who has somehow taught that machine how to behave.”
Lukas PETRIKAS, Co-head of HKEX Innovation Lab
Established only last year, HKEX’s Innovation Lab brings in-house talent together with FinTech startups to work on solutions for Hong Kong’s market operator. But despite the opportunities digital tech opens up, Lukas PETRIKAS, the Lab’s Co-head, believes “at its core, finance is absolutely human”.
Unlike other stock exchanges, HKEX plays two major roles in capital markets. The first, the traditional one, is facilitating the buying and selling of securities in Hong Kong. Developments in FinTech are enabling an evolution in the way these functions are handled, Petrikas explains. “For example, new technology can change the way a security is settled, or something is priced, or how a new company comes to market.”
But, he adds, “HKEX also has another, unique, role, as a bridge between China and the rest of the world.” One of the key initiatives that has helped elevate Hong Kong’s standing as a global financial center is Stock Connect. A collaboration between the Hong Kong, Shanghai and Shenzhen stock exchanges, Stock Connect allows international and Mainland investors to trade securities in each other’s markets.
“Stock Connect has been transformative for Hong Kong,” Petrikas says. “It’s opened up China’s market in a way that probably doesn’t get the headlines it deserves. It’s by far China’s largest cross-border capital account flow channel for investment.”
One thing that hasn’t yet been flowing freely cross-border is user-friendly information and data for newcomers. However, Petrikas and his colleagues are excited at the prospect of FinTech making this possible.
Developing the information connection
“We have just surpassed US$2 trillion traded on the Stock Connect scheme, and that’s a huge number,” Petrikas notes. Most of these trades have been made by people already familiar with the other market: either Hong Kong investors trading Mainland shares they’ve been following, such as large cap companies with a global presence, or Mainland investors trading in Chinese companies listed in Hong Kong, such as Tencent’s. In other words, shares they already know.
“But you have to think about where the next two trillion is going to come from,” Petrikas adds. “I think we’re going to see it coming, increasingly, from people who may not know the other market really well, but with the new technology available, can be empowered to find out more about investment opportunities that were, perhaps, previously obscured by language barriers or information opacity.”
In other words, if more relevant news and data from “the other market” can be made instantly available, along with an analysis and explanation of its significance, the connection can be taken to a whole new level.
Putting FinTech to work
The Innovation Lab is already well-integrated into HKEX’s business, Petrikas explains, and in the future he sees man and machine working ever more closely.
While he believes blockchain technology has the potential to fulfil a useful function as a means to generate trust in deals and processes, Petrikas adds, “I think artificial intelligence is definitely going to have the greatest impact on capital markets.”
He envisions AI become increasingly useful in assisting human decision-making, because of its capacity for spotting patterns in huge volumes of data, and representing these patterns in more meaningful ways.
“We also have a big robotic process automation project in which we codify work flows into rules for bots,” Petrikas says. However, the bots will work alongside, not instead of, humans, he adds. This will allow HKEX’s people to focus on more cognitive tasks.
For Petrikas these complimentary roles underscore a fundamental truth. “Behind each of those machines is a human who has somehow taught that machine how to behave.”
But more than being fundamentally unthreatening, he sees FinTech as having a democratizing effect on areas such as trading. Via mobile technology, gaining access to markets is becoming easier all the time. “This gives individuals like you or I a new reason to become interested in capital markets and securities. You now have access to a lot of analytical capabilities that were previously only available to someone who paid a significant premium for them.”
HKEX Innovation Lab and startups
Prior to launching the HKEX Lab, Petrikas and his team studied other corporate innovation labs. “We found their average life expectancy was only two years,” he says.
Some failed because they were too detached from the main business, others because they were too constrained by corporate bureaucracy. The most common cause, though, seemed to be pretending to be something they weren’t – a startup. “Unless you’ve had to pound the pavement hustling for money to put together shoestring budgets, and hired people who are only paid in stock, you’re not a startup,” Petrikas suggests.
In terms of how to interact most effectively with startups, he believes that often the best approach is to leave them alone. “Once a business is more mature, and we can sit at the table as equals, then we can have a really productive conversation.”
As for the way that startups should approach HKEX, Petrikas cautions against hyperbole. He wishes some founders and entrepreneurs would put more effort into understanding the economic context they are operating in, and be more realistic. “We get a lot of pitches that say, ‘We are changing the DNA of financial markets’, but they are really far from doing that. We can help them make sense of what’s practicable in our capital markets, so theory becomes reality.”