Aussie exchange abandons blockchain plans, leaving $170m hole

The long-awaited plans by the Australian Securities Exchange (ASX) to use blockchain to bring its clearing and settlement system into the 21st century have just been cancelled.

In a statement on 17 November, the ASX announced it had halted all current activities in the “CHESs replacement project” following an independent review by technology consultancy Accenture, which identified “significant challenges with the solution design and its ability to meet ASX’s requirements,” saying:

“Current activities on the project have been paused while ASX re-examines the solution design.”

For the past five years, the ASX had been working on a distributed ledger technology (DLT) solution to replace the 25-year-old Clearing House Electronic Subregister System (CHESS) used to record share records and manage transaction settlements.

Originally the system was slated for a 2020 launch, but the project was marred by several delays over the years with the ASX saying it needed more time for testing, had uncertainty around COVID-19, needed more time for development, capacity overhauls, and even with more testing before it was published.

Among the findings in its 47-page report, Accenture said business workflows were “not tailored for a distributed environment”, the DLT-based system was too complex, and the completion timeline was uncertain regardless of whether the application software was over 60% complete.

ASX chairman Damian Roche apologized for the disruption, adding “there are significant technology, governance and delivery challenges that need to be addressed.”

Helen Lofthouse, ASX managing director and chief executive said “it’s clear we need to revise the solution design” and added “we have some work to do before we update and consult stakeholders more deeply.”

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The announcement has drawn criticism from the Australian Securities Investment Commission (ASIC) and the Reserve Bank of Australia (RBA) – the country’s financial market regulator and central bank respectively – which issued a joint statement on the matter.

RBA governor Philip Lowe called the ASX announcement “very disappointing” and ASIC chairman Joe Longo said the ASX “failed to demonstrate appropriate control of the program to date and this has undermined legitimate expectations that the ASX can deliver a modern world-class financial market infrastructure.”

The two organizations highlighted their expectations, saying that the CHESS replacement must be active before the current system no longer meets requirements, and that “market and service continuity is ensured” by the current system.

The ASX must also “raise its capabilities” and address “the serious deficiencies identified by the independent report” and start by creating a plan to address them.

The ASX said the project had been given a pre-tax cost of between $164.6 million and $171.3 million ($245 to 255 million Australian dollars).