No Blockchain for Aussie Stock Market, RBA Is "Very Dissapointed"

The Australian Securities Exchange (ASX) cancelled its plans to replace the current Clearing House Electronic Subregister System (CHESS) with a blockchain alternative in light of 'solution uncertainty'. Australian regulators and banking authorities expressed strong disappointment. The project has been under development for the last five years and costs more than $170 million.

Since 2017, the Australian Exchange has been working on a solution using distributed ledger technology (DLT) that would replace the 25-year-old CHESS used to manage trade settlements and record shareholdings.

Initially, the launch of the new solution based on blockchain technology was scheduled for 2020, but the project was postponed several times. It was explained by the need for additional testing, uncertainty caused by Covid-19 and some other impediments.

Eventually, ASX announced that it was abandoning further work on the project to reassess its design. Accenture has prepared an independent report stating that the system was too complex and the application completion rate after five years was 60%. As a result, determining the final launch time of the solution remained uncertain.

"We began this project with the latest information available at that time, determined to deliver the Australian market a post-trade solution that balanced innovation and state-of-the-art technology with safety and reliability. However, after further review, including consideration of the findings in the independent report, we have concluded that the path we were on will not meet ASX's and the market's high standards. There are significant technology, governance and delivery challenges that must be addressed," Damian Roche, the Chairman of ASX, said.

"On behalf of ASX, I apologise for the disruption experienced in relation to the CHESS replacement project over a number of years."

ASIC and RBA Criticized the ASX Move

After the ASX's announcement, the Reserve Bank of Australia (RBA) and the Australian Securities and Investments Commission (ASIC) published a joint press release that called the move "a significant setback" for the Australian cash equity markets infrastructure.

"The announcement by ASX after many years of investment by both ASX and industry is very disappointing. ASX needs to prioritise developing a new plan to deliver safe and reliable clearing and settlement infrastructure. The Reserve Bank of Australia also expects ASX to maintain the current CHESS so that it continues to operate reliably and support confidence in Australia's cash equity markets," Philip Lowe, the Governor of the Reserve Bank, commented.

ASIC and RBA require ASX to ensure that the CHESS program is adequately supported to ensure the highest possible financial services standards for Aussie customers and investors. However, the regulator and the central bank want to resume work on the blockchain solution after reassessing its design.

In August 2022, ASIC revealed its corporate plans for the next four years, focusing, among others, on supervising the CHESS replacement. The latest report may alter the institution's strategy.