ASX concedes it must "lift transparency" on core replacement

The Australian Securities Exchange (ASX) says it understands it must “lift transparency” surrounding its CHESS replacement to rebuild stakeholder trust.

The exchange abandoned a blockchain-based replacement of its CHESS core system in November last year due to project management issues, as well as technical and scalability concerns, but not before the broader finance sector had sunk considerable time and money into supporting it.

ASX still intends to replace the system, but has gone back to the drawing board for a new approach.

Fronting a parliamentary committee on Thursday, ASX CEO and managing director Helen Lofthouse said the exchange “acknowledges that we need to do more to lift transparency” around the project.

She said market participants “felt like we weren't listening” during consultations on the core replacement to date, and that this had damaged trust.

“I recognise it will take time to rebuild trust and confidence,” Lofthouse said.

“The challenge for us is to figure out how we reset that stakeholder engagement to really create that trust and confidence going forward and that's certainly a challenge for me and something I'm very focused on.”

Since the project was “paused” Lofthouse said ASX has been reassessing its solution design and “resetting the approach” including selecting former Westpac technology executive Tim Whiteley as its new CHESS replacement project director.

It has also established a CHESS replacement technical committee and industry forum, and a CHESS replacement partnership program backed with up to $70 million, which includes a $15 million rebate program and a $55 million incentive scheme.

Lofthouse added that ASX is now implementing an action plan to address the 45 recommendations contained in an external Accenture review of the project, and will announce its new solution design roadmap in December.

Digital Asset stake

ASX was questioned by the committee if its 5.6 percent minority stake in Digital Asset - the maker of the blockchain-based technology intended to replace CHESS - created unintentional bias during the course of the failed project.  

ASX chair Damian Roche said he believed it played no “part in our decisions around the actions we've taken at any stage along the way.”

“It was a modest investment - I don't think it is unusual in newly developing software businesses," he said.

"I'd note that other exchanges had shareholdings in Digital Asset, other global banks, but I can assure you, our shareholding had no influence over the decisions we've taken with regard to this program.”

Also appearing before the committee, Accenture managing director for financial services Jonathan Hicks said its independent review of the project found Digital Asset to be “immature” and lacking “rigour”.

Its report found a mixture of distributed ledger technology (DLT) and smart contracts inhibited the performance and scalability of the CHESS replacement.

“We called out that there were some differences in the ways of the other two parts of the program were being run. we talked about there were different risk registers, there were different approaches taken to the testing on either side," Hicks said.

“There had been sort of a disassociation between the two parties.”

He understood ASX undertook due diligence internally to select Digital Asset but added that “it was a greenfield build, essentially, that was being undertaken.”

Lofthouse said Digital Asset is still providing “some expertise and input as relevant to their parts” in the solution design.

VMWare is also still part of the project “in addition to a number of new external vendors.”  

Steps to 2028

Chair of the ASX's technology committee Dave Curran said it had been given “reasonable confidence” for a 2028 CHESS replacement timeline “but there is still some work to be done in that”.

Curran said one priority the board is considering is “how are we going to successfully implement this new capability into the marketplace.”

“That sits as a priority with the technology committee ... how are we going to address that," he said.

"There's no perfect solution. Systems are 30 years old, you can't upgrade your way out of it.

"You actually have to make some significant steps, but you don't necessarily have to always do it in one large step.

“The Accenture reports made that very clear.”