The Australian Securities Exchange (ASX) has suffered yet another blow to its plans of putting the exchange on the blockchain, announcing that its launch would be delayed by at least another year.
On Wednesday, the ASX’s new CEO and managing director Helen Lofthouse shared news about the delay — the fifth since the $250 million project was launched in 2015 — along with the commissioning of an independent review of the project.
“I know our customers will be as disappointed as I am with the uncertainty about the timeline for completion. I apologise 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 the sales and shareholdings of brokers and other exchange participants.
According to the ASX, long transaction times stemming from paper-based settlements during the 1986/1987 “bull” market was acting 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 set out its intention to overhaul CHESS with a new system that would make the exchange quicker and cheaper to run. The process was supposed to take four years and $50 million. It wasn’t until a few months into the process that the ASX mentioned plans to incorporate the blockchain.
“We are looking at what we can do to bring end-to-end efficiencies, and we have people looking very closely at blockchain to see if we can create efficiencies for our clients, investors and companies,” ASX managing director Elmer Funke Kupper said.
Popularised by Bitcoin, the blockchain is a technology that creates a distributed ledger of information between multiple parties. Think of it as an Excel spreadsheet, except multiple people possess copies that they can use to track any changes. This creates trust because it means no one person can alter the ledger without other parties having to verify that transaction.
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This comes in handy for digital systems involving money because it stops one party from “double spending” i.e. selling the same equity a second time while the first transaction is still being processed.
The ASX is building its new computer system on the back of this technology. Unlike a lot of projects using the public blockchain used with Bitcoin, the 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 beset by delays. In February 2020, it was moved back to April 2022, then April 2023. Now, the new deadline of late 2024 sets the finish line at a date that’s nearly a decade since the ASX first set out to replace CHESS. The price tag has followed, too, increasing fivefold from what it was first projected to be.
“Even I’m a bit shocked by the latest announcement. It’s way worse than even I thought, given they seem to have kicked the can way down the road to 2025,” former ASX executive Patrick McConnell told the 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 is only looking at the software application of the project and not the blockchain ledger it’s built off.)
“We expect the ASX to continue to invest in and maintain the current CHESS system so that it continues to service the market reliably until the CHESS replacement can go live,” the ASIC’s statement said.