AUS
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Highlights
- ASX plans a $445 million CHESS replacement in two phases by 2029.
- ASIC scrutiny continues over ASX's earlier blockchain project failure.
- New system aims for future-readiness with modular, cloud-based technology.
The Australian Securities Exchange (ASX:ASX) has committed to a $445 million budget for its latest effort to replace the outdated Clearing House Electronic Subregister System (CHESS). This decision follows the 2022 failure of its initial blockchain-based upgrade, which led to a $250 million loss and heightened regulatory scrutiny. The revamped CHESS system will be deployed in two stages and aims to meet evolving market needs with a modular, cloud-based platform.
Challenges with the Original CHESS Project
CHESS, introduced in 1994, has been central to clearing and settlement in Australian markets. However, modernization became critical as the system aged. In 2017, ASX partnered with Digital Asset to build a blockchain-based replacement. Despite its ambitions, the project faced excessive customization, technical defects, and stakeholder dissatisfaction. Testing revealed major issues, forcing ASX to abandon the initiative in November 2022, resulting in significant financial and reputational damage.
The Australian Securities and Investments Commission (ASIC) has since pursued legal action against ASX, alleging misleading statements about the project's progress in 2022. ASIC contends that ASX claimed the project was on track for an April 2023 launch, despite lacking reasonable grounds. ASX has denied these allegations, maintaining that its statements reflected available data at the time.
The Revised CHESS Replacement Plan
ASX's new CHESS system will be delivered in two phases:
- Release 1 (Clearing services): Scheduled for 2026, with costs estimated between $105 million and $125 million.
- Release 2 (Settlement and subregister services): Expected in 2029, with costs ranging from $270 million to $320 million.
ASX CEO Helen Lofthouse highlighted the extended timeline, emphasizing rigorous testing and preparation to ensure reliability. The modular design, developed by Tata Consultancy Services, will provide greater flexibility and adaptability for future upgrades.
Future Market Readiness and T+1 Settlement
The revamped system will initially retain the current T+2 settlement cycle. A transition to T+1, already adopted in the US, will be evaluated after the second release is complete in 2029. While T+1 offers advantages like reduced risk and enhanced liquidity, its implementation will require significant upgrades and coordination across the financial industry. ASX has indicated that this shift could not occur before 2030.
Market Sentiment and Outlook
The announcement has drawn mixed reactions, with concerns about costs and project timelines persisting. ASX shares closed lower following the update, reflecting ongoing investor caution. Despite these challenges, ASX remains committed to delivering robust and reliable infrastructure for Australian markets.
