ASX’s blockchain move will cost $200 million more than originally forecast

The Australian Securities Exchange (ASX) has dealt another blow to its plans to put its exchange on the blockchain, announcing that the launch will be delayed by at least another year.

On Wednesday, ASX’s new CEO and managing director Helen Lofthouse shared news of the delay – the fifth since the $250 million project was launched in 2015 – along with the launch of an independent review of the project.

“I know our customers will be as disappointed as I am about the uncertainty of the completion timeline. I apologize for the uncertainty and thank them for their close and constructive work with us on this important project,” she said in a statement.

The ASX’s project is a long-awaited upgrade to the Clearing House Electronic Subregister System (CHESS), the computer system used to track sales and share transactions of brokers and other exchange participants.

According to the ASX, long transaction times stemming from paper-based settlements during the 1986/1987 “bull” market acted as a bottleneck for the activity of brokers (and by extension their clients). The then National Companies and Securities Commission agreed to come up with a more efficient system in 1990 and launched CHESS in 1994. Since then, the system has been updated with changes including reducing settlement deadlines to two days, but has largely remained the same .

In 2015, the ASX stated its intention to overhaul CHESS with a new system that would make the exchange faster and cheaper to run. The process was supposed to take four years and 50 million dollars. It wasn’t until a few months into the process that the ASX mentioned plans to incorporate the blockchain.

“We’re looking at what we can do to get end-to-end efficiencies and we have people looking very closely at blockchain to see if we can create efficiencies for our customers, investors and companies,” ASX CEO Elmer said Fun Coup .

Popularized by Bitcoin, blockchain is a technology that creates a distributed ledger of information between multiple parties. Think of it as an Excel spreadsheet, except multiple people have copies that they can use to track changes. This creates trust because it means that no one person can change the ledger without other parties having to confirm the transaction.

This is useful for digital systems involving money because it prevents a party from “double spending”, i.e. selling the same equity a second time while the first transaction is still being processed.

ASX is building its new data system on the back of this technology. Unlike many projects that use the public blockchain used with Bitcoin, ASX said in 2016 that it was creating its own “industrial strength” private network. In 2017, ASX selected Digital Asset Holdings to build the project to test by July 2020 and launch by April 2021.

Since then, the project has been plagued by delays. In February 2020 it was moved back to April 2022, then April 2023. Now the new deadline of late 2024 puts the finish line on a date that is almost a decade since the ASX first set out to replace CHESS. The price tag has also followed suit, and has increased fivefold from what it was initially estimated to be.

“Even I’m a bit shocked by the latest announcement. It’s a lot worse than I thought, given that they seem to have kicked the can down the road to 2025,” former ASX CEO Patrick McConnell said. AFR. Both regulators ASIC and the Reserve Bank acknowledged the project’s delay as disappointing and welcomed the review of the work done so far. (The review only looks at the software application of the project and not the blockchain it is built from.)

“We expect that ASX will continue to invest in and maintain the current CHESS system so that it continues to serve the market reliably until the CHESS replacement can go live,” ASIC’s statement said.