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Highlights
- ASX unveils $445 million budget to replace the outdated CHESS system.
- The updated system will be rolled out in two phases, expected to finish by 2029.
- ASX’s previous blockchain-based attempt failed after $250 million in losses.
The Australian Securities Exchange (ASX:ASX) has committed a hefty $445 million to replace the aging Clearing House Electronic Subregister System (CHESS), a project that has faced significant setbacks over the years. After the failure of a blockchain-based system in 2022, ASX is now revisiting its plans, with a revised approach that will span two phases and is set to roll out by 2029. The revamped project marks a stark increase in cost compared to the $250 million lost on the initial attempt.
Troubled History of CHESS
Originally launched in 1994, the CHESS system has long been deemed outdated, prompting ASX to modernise it in 2016. By 2017, the ASX was in partnership with Digital Asset to develop a blockchain-based replacement, aiming to lead global markets in post-trade innovation. However, the project encountered significant issues, including excessive customisation, dissatisfaction among stakeholders, and major defects found during testing. In November 2022, the ASX abandoned the blockchain project, taking a substantial financial hit.
Legal Scrutiny and Oversight
The failed initiative also brought legal challenges. In August, the Australian Securities and Investments Commission (ASIC) filed proceedings, accusing ASX of misleading investors in February 2022 by claiming the project was “on track for go-live” in April 2023. ASIC argued that ASX’s statements lacked a reasonable basis, undermining confidence in the integrity of market disclosures. ASX has denied any wrongdoing, maintaining that the statements were based on the best available information at the time.
Costs and Timeline for the New Project
The new CHESS replacement will use a modular, cloud-based platform, developed by Tata Consultancy Services. The project will be completed in two releases:
- Release 1 (Clearing services): Slated for 2026, with costs projected 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 stated that the increased cost was due to the extended timelines, which allow for more thorough testing and preparation to ensure the system meets current and future market demands.
T+1 Settlement and Future Readiness
The updated system will initially maintain the current T+2 settlement cycle, where trades settle two business days after execution. However, ASX is considering a transition to a shorter T+1 cycle, where settlements occur within one business day, but this will only be explored once CHESS Release 2 is fully implemented by 2029. The move to T+1 would require extensive upgrades across the system and the broader industry, making it a complex transition. ASX has indicated that the T+1 settlement cycle could be a reality as early as 2030.
Market Reaction and Challenges Ahead
Despite the announcement of the new project, the market has reacted cautiously. ASX shares fell 4.3%, closing at $66.18, as the cost and timeline exceeded expectations. Analysts have raised concerns about the protracted timeline and the risk of further complications, given the complexity of the project.
Nevertheless, ASX remains committed to delivering the project, with CEO Lofthouse emphasising the importance of updating critical market infrastructure to ensure the exchange remains effective and responsive to market needs. The road to modernisation may be long and costly, but ASX believes that it is a necessary investment in the future of Australia's financial markets.
