ASX Takes First Steps in introducing its Blockchain-Based Replacement to CHESS

By Jim Bulling, Felix Charlesworth and Andrew Fay

On 30 April 2019, Australian Securities Exchange (ASX) released the first of seven “drops” of software code into the “Customer Development Environment”. This marks the beginning of the introduction of the new equities clearing and settlement system, which ASX is developing to replace the existing CHESS system. The new system is based on distributed ledger technology (DLT) and promises to provide customers with access to real-time, synchronised, source-of-truth data.

ASX’s plan to switch from the CHESS post-trade system to the new DLT system will be the first time that a major market has utilised DLT, a move that is being closely monitored by other major market operators around the world. ASX has secured the support of the Australian Securities and Investments Commission, which has expressed interest in the potential collateral benefits arising from improved data availability, including the ability to more closely monitor the activities of brokers, clearing participants and the clearing house itself. Following extensive industry consultation, the schedule for implementing the system was initially delayed due to concerns around the scope of the changes required. More recently, however, ASX has confirmed that it remains on track to “go-live” with the new DLT system in March – April 2021.

The introduction of the new technology has not come without criticism. Prior to the release of the first “drop”, a working group, which comprises key stakeholders (including a number of share registries), accused ASX of using the CHESS replacement to further strengthen its monopoly in post-trade settlement. ASX has maintained that it continues to comply with its regulatory obligations and has provided the following timeline for the introduction of the new DLT-based system:

  • “Industry Wide Test Environment” is planned to be available from July 2020;
  • “Pre-Live Production Environment” is planned to be available from October 2020; and
  • “Target Go-Live” window is March – April 2021.

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