Blockchain Events
ASX Clearance Operations Rattled By Blockchain Catastrophe
Political and investor resentment over ASX failure to modernize the share market’s technology is threatening the exchange’s monopoly on clearing and settling cash equities market trades.
A seven-year initiative to replace the old CHESS system with blockchain distributed ledger technology was discontinued by ASX.
It would deduct $245 million to $255 million and may be required to reimburse trading companies that spent $100 million on project enhancements.
Accenture discovered numerous challenges with the project, including uncertain timeframes, communication problems with technology provider Digital Asset, and excessive complexity.
By identifying design faults and ASX’s delivery issues, the study weakened the exchange’s confidence.
Accenture’s concerns were raised so late in the project, weakening ASX’s confidence, according to ASIC chairman Joe Longo. The Reserve Bank of Australia governor, Philip Lowe, described the ASX as “very disappointing.”
Queensland Liberal Senator Paul Scarr has requested that regulators investigate if ASX’s control of critical national infrastructure creates a conflict of interest that necessitates a market structure adjustment. According to market experts, this might imply mutual ownership of clearing infrastructure.
Big investors were disappointed by Australia’s abandoned goal to be at the forefront of financial sector innovation.
A well-known investment banker described it as “globally embarrassing.” “We want to get to work. We want assurance that our systems are scalable and fit for purpose, and all of this back and forth feels like a waste of time and money.
‘Difficulties’
Damian Roche, chairman of the ASX, apologized to brokers and the market for the project’s issues but said the board had to suspend it because standards had fallen.
“Our approach will not meet ASX or market criteria,” he stated.
“Major challenges include technology, governance, and delivery. I regret on behalf of ASX for the years-long disruption of the CHESS replacement project.”
Scarr suggested that ASX apologize. The ASX should apologize to market participants who invested time and money in this initiative.
“The ASX’s board and management should consider the current situation. According to him, the Accenture investigation highlights project management challenges.”
Following a disastrous few weeks in the industry, when crypto exchange FTX fell, lowering the value of numerous cryptocurrencies that utilize blockchain technology, the ASX backed off its desire to establish a private blockchain.
ASX will investigate all options for constructing a new clearing and settlement system while retaining existing infrastructure. ASX stated that it will create an industry forum to gather feedback and project updates before deciding what to do next.
ASX put the project on hold while it reworked the solution. “All project stakeholder activities will cease, as will the industrial testing environment.”
The Accenture audit, which was commissioned in August following the project’s fifth delay, revealed that the ASX application software was only 63% complete.
It revealed an overcomplicated system design, particularly how ASX requirements interact with the application and ledger.
After paying millions to connect to the new system, stockbroking firms have begun estimating how much of their assets may need to be wiped down.
Broadridge and GBST have contractual obligations to ensure that broker clients are prepared to upgrade to new market infrastructure.
What has been spent and what is still available? “Understanding what led to ASX’s decision and determining what can be kept will be a primary focus,” Stockbrokers and Investment Advisers Association CEO Judith Fox said.
Companies that want to develop with distributed ledger market data are dissatisfied since they will be stuck with the outdated system for an uncertain period of time.
Delay after delay has demonstrated that establishing a new tech platform requires a robust tech function. The decision, according to Paul Williams, CEO of Automic Group, which was developing new registry services in ASX’s testing environment, demonstrates that ASX is not that.
“We’re still operating on a 25-year-old platform with no automation, resulting in system disruptions and inefficiencies.” There is a cost, but I am upset that we will continue to use old technology.
The Australian Securities and Investments Commission and the Reserve Bank of Australia stated that the ASX’s decision “marks a significant setback to the replacement of critical national infrastructure for Australia’s cash equity markets and now brings into sharp focus the longevity of the existing CHESS platform.”
ASIC and the RBA jointly wrote ASX a letter stating ASX’s expectations for the current CHESS system’s stability, robustness, and endurance.
They have requested that ASX enhance its program delivery capabilities and that the CHESS replacement program “be brought back on schedule after the solution design is finalized.”
Dr. Lowe described the ASX news as “disappointing” after years of investment. “ASX must develop a new strategy to ensure safe clearing and settlement infrastructure.”
ASX will now go back to the drawing board to determine whether blockchain can still play a role in settlement and clearing, or whether another technology is required. It hasn’t been working on a “Plan B” in parallel with the project.
ASX chose Digital Asset Holdings to develop the distributed ledger in 2017 after examining the technology in 2015. There is a lot of optimism about blockchain’s ability to create market efficiencies by eliminating intermediaries.
It was intended to be on sale in April. It was frequently delayed because the system did not meet market demands. Trade settlement was hampered by insufficient throughput.
Because the planned technology couldn’t connect to independent settlement and clearing systems, ASX struggled to reduce market expenses. Existing registries and custody firms are concerned that the ASX will take away their roles.
The ASX will explore using Digital Asset and VMWare in any improved system, but it will keep all alternatives open.
The announcement has “disappointed” ASX CEO Helen Lofthouse. “We’ll think about it again. We are looking for the best solution for the Australian market and will conduct a thorough and deliberate analysis of the choices.”
The derecognition fee reflects the current solution design’s future worth. It does not preclude us from using previously generated elements as long as we can alter our current design to match ASX and market standards, she explained.
ASIC and the RBA want ASX to actively interact with the industry during the new process “to ensure market confidence in its selected implementation choice, delivery strategy, and timeframe.”
The authorities will contact directly with the brokerage industry to ensure that ASX takes their views into account.
According to Mr. Longo, the examination revealed significant gaps and inadequacies in ASX’s program delivery skills and technological design.
“It’s regrettable that these findings came so late in a critical replacement program.”
“To date, ASX has failed to exhibit effective program control, casting doubt on its ability to deliver world-class, modern financial market infrastructure.”
Former Westpac executive Tim Whiteley has been nominated project director for the second phase of CHESS replacement to improve ASX’s project management capabilities. ASX will continue to invest in the current CHESS system, but it will eventually need to be replaced.
According to ASX, the independent audit emphasized the project’s “scale and complexity.” It raised “vendor management problems,” such as how the ASX and Digital Asset teams “operate and interact, causing delivery challenges.”
It comes after a difficult period for ASX, whose share price is down 23% this year due to growing regulatory and political scrutiny and new leadership, following the departure of former CEO Dominic Stevens and much of his senior leadership team. The AGM in September marked the ASX board’s first strike.
The ASX closed 0.2% down at $71.00, reversing a 3% loss. According to ASX, the write-down is significant and will not influence dividends. The stock was rated outperformed by Macquarie.
ASX said in a separate release on Thursday that it has terminated 72,283 performance rights in response to shareholder demands for management accountability for the issue. Mr. Stevens and previous deputy CEO Peter Hiom will continue in their roles until May 2021.
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