The Australian Stock Exchange (ASX) was once viewed as a pioneer in transitioning from legacy exchange technology – CHESS – to blockchain or distributed ledger technology.
The strategy was to create a “database architecture that solves a data reconciliation issue.” This has nothing to do with crypto but an updated path to manage data that streamlines operations.
The project commenced in 2016 with an anticipated go-live date of mid-2021, which was eventually pushed back. The go-live date never took place.
Yesterday, ASIC [Australian Securities and Investments Commission] made the extraordinary decision to sue ASX for “alleged misleading statements.”
ASIC issued a statement explaining:
“ASIC has commenced proceedings in the Federal Court against Australia’s largest market operator, ASX Limited, for allegedly making misleading statements related to its Clearing House Electronic Subregister System (CHESS) replacement project.
ASIC alleges statements made in ASX announcements on 10 February 2022 that the project remained “on-track for go-live” in April 2023 and was “progressing well” were misleading.”
ASIC claims that ASX had no reasonable basis to expect the project to be on track to meet future expectations.
Joe Longo, ASIC Chair, said ASX’s statements challenged the integrity of their markets.
“We believe this was a collective failure by the ASX Board and senior executives at the time. Companies and market participants rely on what the ASX says about its operations to make their own decisions and investments. We expect the ASX to be a place to list and invest with confidence. When the ASX falls short, it has wide ranging consequences across the market.”
Longo claims that statements the project was on track did not reflect the reality of the CHESS replacement plan.
“‘The CHESS replacement project must be managed effectively and transparently. Failure to do so can lead to a lack of confidence in Australia as a market to attract investment,” said Longo.
ASX management quickly issued a statement of their own. Helen Lofthouse, ASX Managing Director and CEO, stated:
“We recognise the significance and serious nature of these proceedings. We cooperated fully with ASIC’s investigation and are now carefully reviewing and considering the allegations. We play a critical role at the centre of Australia’s financial markets, and continue to focus on supporting and delivering for customers. We are committed to taking ASX forward, and have made strong progress as an organisation over the past two years.”
ASX also noted that the CHESS replacement project was paused in November 2022.
Andrew Carrier, a Member of Quant’s Executive Committee, shared a comment with CI on ASIC’s decision to sue the main exchange in Australia. Quant is a UK-based company that has created an API-based blockchain platform. Quant specializes in regulated services.
Carrier said the ASX blockchain project has been described as a Frankenstein, but the technology holds enough promise to make it worthwhile.
“ASX’s project management issues were compounded by the fact that they were building their own blockchain from scratch, when public and permissioned blockchains, tested and validated in real-world scenarios, already offer scalable and secure solutions that can be tailored for financial services,” said Carrier. “The smart move is to use reputable, low-code tokenisation platforms that deliver enterprise-grade tokens and secure smart contracts without hefty price tags. We always say to start small, test, iterate, and then scale – just like successful CBDC pilots.”
Carrier believes that firms can also start by complementing existing infrastructure with blockchain technology such as incorporating digital asset technologies. He is of the opinion that firms can trade digital assets and traditional assets side by side without disrupting current capital market flows.
“Once adoption hits critical mass, it is then possible to transition to the new technology and phase out legacy systems. No big bang needed, no day-to-day disruptions. Blockchain’s potential is immense, let’s get it right.”
While the initiative to replace CHESS with a blockchain-based service that would “simplify [firms] business processes, reduce capital requirements, remove legacy infrastructure, and offer innovative new services to their customers” has obviously fallen short, there are other providers outside Australia that have had some success with regulated products. Platforms like Tokeny in Europe, or Securitize in the US, are seeking to bridge the analog and digital markets divide. There are others.
Most everyone anticipates that digital securities will be the future, traded and managed on platforms that benefit from updated tech. But that future has remained somewhat elusive, perhaps more so in Australia.
As for ASIC, it has yet to determine the penalty it may seek for “ASX’s alleged contraventions.”
ASX will also report its full-year 2024 results this Friday, 16 August 2024, at which time more insight may be shared on the dispute with the regulator.