The prospect of instantaneous settlements on Papua New Guinea’s stock exchange, PNGX, has moved a little closer with a new agreement to explore blockchain technology to support its trading system. PNGX Chairman David Lawrence tells Business Advantage PNG the technology could ‘turbocharge’ PNG’s capital markets.

At present, it takes three days to settle a trade on PNG’s stock exchange, using a system that still relies to some extent on manual processes.

This week, PNGX Markets signed a memorandum of agreement with financial market technology specialist XBourse to change that to real-time settlement. In the process, the aim is also to make it easier for local and international investors to invest directly in PNG-listed companies.

PNGX’s David Lawrence

‘XBourse’s digital ledger technology (also known as blockchain) and smart contracts have the potential to turbocharge the public and private capital markets in the Pacific region,’ says David Lawrence, Chairman of PNGX markets and its majority shareholder, Pacific Capital Markets Development.

‘The concepts currently being developed would be world-leading, presenting real opportunities for Papua New Guinea. It’s a real opportunity for PNGX to leapfrog to the next generation of technology.’

‘Blockchain has many attractions for us: it’s cloud-based, scalable, fully auditable and transparent …’

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Lawrence says the exchange’s new digital market infrastructure and services would be customised by XBourse, a company he says has ‘exceptional pedigree’.

XBourse founder Tony Mackay was a key member of the team that pioneered electronic trading in the 1990s and 2000s and developed INET, the markets and technology that powers NASDAQ. More recently, he founded global exchange operator Chi-X.

‘Blockchain has many attractions for us: it’s cloud-based, scalable, fully auditable and transparent, and its smart contracts can help innovate our trading rules, support new products and build liquidity’ says Lawrence.

‘At the moment, if you’re an international investor, you can buy [shares in PNG] but you can’t easily sell.’

A key component of the new platform would be a new central securities depository as a central share register, which would allow PNGX to act as the custodian for international investors funds making it more attractive to invest in PNG. It’s expected the platform will provide interoperability with the Bank of Papua New Guinea, and potentially other PNG government agencies such as the Investment Promotion Authority.

Diversification

Lawrence sees the solution as helping to drive the greater diversification and long-term strategy at the PNGX. Recently, the exchange signed a partnership agreement with the International Finance Corporation (IFC), which will see the IFC provide advisory services to the exchange to help it grow PNG’s capital markets into areas such as green and sustainability-linked bonds.

The new platform will be developed in consultation with local stakeholders, with PNGX to shortly begin conducting industry forums to discuss user and regulator needs.

Once the new system is built, Lawrence says there is one final step that needs to be taken for PNG’s capital markets to be fully accessible to international investors: ease of movement of foreign exchange out of the country.

‘At the moment, if you’re an international investor, you can buy [shares in PNG] but you can’t easily sell. That needs to be addressed by the central bank if PNG wants to attract international investors,’ he says.