Eight years ago, Australia’s largest market operator unveiled plans to overhaul its aging trade settlement system with a blockchain-powered platform. The project promised to be a game-changer for Australia’s financial infrastructure. But fast forward to 2024, and the project is now the subject of a major legal dispute.
The Australian Securities and Investments Commission (ASIC), the independent regulatory body responsible for enforcing corporate and financial services laws, has filed a lawsuit against ASX over the Clearing House Electronic Subregister System (CHESS) replacement project.
It alleges that ASX misled investors and market participants about the progress of the project, making optimistic statements about the project’s timeline and success, despite being aware of substantial internal challenges and delays.
Specifically, the regulator points to statements made by ASX on 10 February 2022, claiming that the project was ‘on-track for go-live’ in April 2023 and ‘progressing well’. ASIC contends these claims were misleading and deceptive, given that ASX was aware of significant delays and technical issues.
The CHESS project
The CHESS system, a critical part of Australia’s financial infrastructure, has been in operation for decades, facilitating the clearing and settlement of trades on the Australian Securities Exchange.
To address the need for modernisation, ASX initiated the CHESS replacement project with the goal of introducing a more efficient, secure and scalable platform. The decision to use blockchain technology was particularly bold, as it promised to shake up how transactions were processed and recorded.
In 2017, ASX engaged Digital Asset (DA) to build the ledger and application for the CHESS Replacement System, but in 2022, the operator announced a 20-month delay in the overhaul, citing problems with achieving “scalability and resilience.”
Internal reports from DA had flagged serious concerns as early as December 2021. DA’s red ‘RAG’ status report indicated material risks to the project’s timely delivery. Despite these warnings, ASX continued to assure the market that everything was on schedule.
ASIC previously claimed that the issues with the CHESS Replacement Project triggered a $250 million write-down, causing ripple effects for ASX shareholders and imposing significant costs and other collateral impacts on market participants who had to invest in the testing phase.
Taking action
ASIC chair Joe Longo stressed the importance of trust and transparency in financial markets, stating: “ASX’s statements go to the heart of trust in the integrity of our 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.
“The delay and subsequent pause of the project in November 2022 caused significant cost to ASX and market participants who relied on assurances as to the progress of the project and scheduled go-live date. 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.”
ASX’s response
In response to the lawsuit, ASX has acknowledged the seriousness of the allegations but insists it will defend itself vigorously. Helen Lofthouse, ASX’s managing director and CEO, commented: “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.”
Since pausing the project in November 2022, ASX has revised its approach, opting to abandon the blockchain-based solution in favour of a more conventional system developed with TATA Consultancy Services (TCS).
ASX now plans to roll out the new implementation in two phases, with the first release expected in 2026 and the second in 2028 or 2029.
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