The Australian Securities Exchange (ASX) has axed the blockchain-based system it had hoped would underpin its CHESS core system replacement, and will head back to the drawing board.
The exchange said that between its own experience with the Digital Asset-built system so far, and a review by Accenture, it had drawn the conclusion that the system would not meet its needs.
All “current activities” on the core replacement project have been paused to allow the ASX to “revisit” the solution design.
The decision means a “$245-255 million pre-tax ($172-179 million after tax)” write-off for its first half results, but the ASX said it would have “no impact on dividends.”
It's not clear if this also includes "significant" industry-incurred costs associated with the core replacement.
“We began this project with the latest information available at that time, determined to deliver the Australian market a post-trade solution that balanced innovation and state of the art technology with safety and reliability,” ASX chairman Damian Roche said in a statement.
“However, after further review, including consideration of the findings of [an] independent review, we have concluded that the path we were on will not meet ASX’s and the market’s high standards.
“There are significant technology, governance and delivery challenges that must be addressed.”
Roche said the decision to discontinue work on the Digital Asset-based CHESS replacement had “not been made lightly”.
The review by Accenture was called in August after go-live for the blockchain-based CHESS replacement was delayed by a further 18 months to late 2024.
CHESS stands for clearing house electronic subregister system. It underpins all trades and settlements on the exchange.
ASX said the existing CHESS system “remains stable and secure” and would now receive some extra investment “in its capacity and resilience”.
The exchange said it remained committed “to providing the best long-term clearing and settlement solution for the Australian financial market.”
That also means it remains committed to ultimately finding a replacement for the current CHESS.
“A project director with extensive technology transformation experience has been appointed for the next phase of the CHESS replacement project,” ASX said.
Managing director and CEO Helen Lofthouse said the replacement remains “a large and complex undertaking.”
Lofthouse said Accenture’s findings “provide valuable inputs to helping us determine a revised solution.”
“We have some work to do before updating and consulting with stakeholders more deeply,” she said.
“In the meantime, our priority is continuing to maintain the stability of the existing CHESS system, which underpins the smooth operation of our financial markets.”
ASX’s program delivery capabilities criticised
The Australian Securities and Investments Commission (ASIC) and the Reserve Bank of Australia (RBA) said the ASX’s move “marks a significant setback to the replacement of critical national infrastructure for Australia’s cash equity markets”.
Moreover, it is a black mark on the ASX’s internal “program delivery capabilities”, and the two overseers voiced their displeasure at the findings of the Accenture report.
“The independent report has found significant gaps and deficiencies in ASX’s program delivery capabilities and that there are significant challenges in the technology design,” ASIC chair Joe Longo said.
“That these findings can be made at this late stage of a critical replacement program is altogether unsatisfactory.
“The ASX has failed to demonstrate appropriate control of the program to date, and this has undermined legitimate expectations that the ASX can deliver a world-class, contemporary financial market infrastructure.”
Both the RBA and ASIC have jointly set “expectations” on the ASX for future program delivery capabilities, and for the continuation of the CHESS replacement.
Reserve Bank governor Philip Lowe said the ASX would need to work hard to restore industry “confidence” in its ability to execute the core replacement.
“That requires, once the solution design is complete, a delivery plan, including a highly credible, hard go-live date,” he said.
“The regulators expect the ASX to actively consult industry throughout this process to ensure there is market confidence in its selected implementation option, delivery plan and timeline.
“The regulators will engage with industry directly to make sure their perspectives are given appropriate consideration by ASX.”
