Australia
07 Dec 2022
Jenna Lomax examines the repercussions of ASX’s recent decision to halt its mammoth CHESS project
Image: romolo_tavani/stock.adobe.com
Famous for its tropical waters, beaches, desert landscapes and year-round sunshine, Australia boasts plenty for inhabitants and visitors alike. Though, this year, the country has weathered some significant storms — both meteorologically and institutionally.
Just weeks ago, on 17 November, the financial industry woke up to the news that the Australian Securities Exchange’s (ASX’s) CHESS replacement project had come to a grinding halt after an internal assessment by the ASX and the completion of an independent review, conducted by Accenture.
The ASX said it was “reassessing all aspects” of the planned update, after a seven-year preparation period. The decision was blasted by many, including Tony Boyd, a columnist for the Australian Financial Review, who labelled the turn of events as “a barrier to the country adopting technologies”.
He scathingly added: “Unfortunately, ASX management and its board of directors have proven over the past seven years that they do not have the technical skills to manage a large-scale technology project, or the self-awareness to know that what they are doing is investing in a technology dead-end.”
ASX says it will write off between A$245 million and A$255 million, pre-tax, related to the project. To add insult to injury, the securities exchange may have to compensate trading firms, many of whom have already upgraded their own systems in preparation for the new network. The bill is estimated to be around the A$100 million mark.
However, some industry participants have shown more empathy and understanding toward the ASX’s decision. “The critical nature of systems [such as CHESS] demands safety, efficiency, accessibility and reliability,” says Davinder Oberoi, director of banking and financial services, Australia at CGI.
“The industry’s experience and understanding of operating distributed ledger technology (DLT) in a critical environment is still evolving, with a number of different technical approaches as well as approaches around legal and risk management being tested, to ensure that both industry and regulators have confidence in the application of this new technology.”
In October 2022, there were warning signs that the ASX was struggling with the pressures to meet its expected deadline for the CHESS project when it confirmed that the go-live date of April 2023 was “no longer viable”.
At that time, the Reserve Bank of Australia (RBA) said it was “disappointed” by the delay. This comment was included in RBA and the Australian Securities and Investments Commission’s (ASIC’s) 2022 review of the exchange’s clearing and settlement facilities.
RBA and ASIC ran their first ASX review after the exchange’s power outage on 16 November 2020 when it was carrying out a major upgrade to its Nasdaq equity trading platform, ASX Trade. The Australian regulators viewed these operational incidents with significant concern.
Stormy seas?
By chance, Asset Servicing Times (AST) already had an Australian Focus written into the schedule for December 2022, before ASX’s most recent update broke. Speaking to AST before 17 November, Darren Speirs, head of portfolio solutions for APAC at Bravura Solutions, told the publication that ASX needed to “carefully manage the transition period.
We anticipate it could result in a number of project delays, with the need to reprioritise delivering, testing and implementing features,” he added. Speir’s prediction, shared in September, proved to be correct.
So, what happens next? Is ASX’s reputation beyond reproach? It would appear not everyone thinks the delay is quite so drastic as others. David Travers, CEO of the Australian Custodial Services Association (ACSA), says ACSA and its members note that this is a “significant setback for the ASX”, but affirm that it is imperative that the platform is built to “deliver the requirements expected, including functionality, process capacity and resilience.”
He goes on to say: “ACSA supports the ASX in ensuring that any change to CHESS is undertaken in a manner that minimises implementation risks.”
For background, the original CHESS was developed by ASX more than 25 years ago and enabled the dematerialisation of the cash equity market, a move to T+3 settlement — which was reduced to T+2 in March 2016 — and improved the efficiency and effectiveness of post-trade processing in Australia.
It is hoped the new blockchain-based system, when eventually live (and in whichever format), will improve data analytics and help users make informed predictions, all while helping Australia’s financial services adapt to an ever-changing market.
The essential ingredient for the increased resilience and functionality that ACSA’s Travers alludes to could well be time — something ASX’s most unforgiving critics would say it has already had plenty of. The other essential elements for the project’s progression are of course advances in technology and knowledge. Delving deeper, Bravura’s Spiers says: “the more nodes participating in DLT, the more robust it will be.”
“DAML smart contract language, open standards (ISO 20022) messaging, and availability for authorised users will allow for the evolution of an ecosystem of services that benefits the industry.” He continues: “These include portfolio reconstructions, better management of elective corporate actions, and the enablement of interoperability between different international exchanges.”
CHESS’ original go-live date was set for April 2022 but was pushed back to April 2023, mostly due to the impact of the COVID-19 pandemic on the industry throughout 2020 and into 2021.
Often nicknamed ‘Fortress Australia’, the country had some of the strictest COVID-19 restrictions in the world, with its last isolation rulings ending as recently as 14 October.
The Australian government closed international borders for more than two years and, throughout that time, imposed strict limits on movement between states and territories. This decision greatly reduced the enablement of collaboration and productivity on the CHESS system, though the virus cannot be blamed for ASX’s progression (or lack of) between 2015 and 2019.
Before ASX announced the pause to the CHESS project on 17 November 2022, market participants were mostly in agreement that the new go-live date of April 2023 was agreeable, despite the last two and a half years of upheaval.
As a closing note, it has not escaped this millennial that on the very same day the ASX announced its CHESS project plans were effectively dead and buried, Australia’s longest-running soap opera Neighbours was resurrected. The show was plucked back from the pop culture archives by television network Amazon Freevee, despite wrapping up 37 years of broadcasting in July. Only time will tell if and when ASX can manage its own kind of revival with the colossal CHESS project.
Just weeks ago, on 17 November, the financial industry woke up to the news that the Australian Securities Exchange’s (ASX’s) CHESS replacement project had come to a grinding halt after an internal assessment by the ASX and the completion of an independent review, conducted by Accenture.
The ASX said it was “reassessing all aspects” of the planned update, after a seven-year preparation period. The decision was blasted by many, including Tony Boyd, a columnist for the Australian Financial Review, who labelled the turn of events as “a barrier to the country adopting technologies”.
He scathingly added: “Unfortunately, ASX management and its board of directors have proven over the past seven years that they do not have the technical skills to manage a large-scale technology project, or the self-awareness to know that what they are doing is investing in a technology dead-end.”
ASX says it will write off between A$245 million and A$255 million, pre-tax, related to the project. To add insult to injury, the securities exchange may have to compensate trading firms, many of whom have already upgraded their own systems in preparation for the new network. The bill is estimated to be around the A$100 million mark.
However, some industry participants have shown more empathy and understanding toward the ASX’s decision. “The critical nature of systems [such as CHESS] demands safety, efficiency, accessibility and reliability,” says Davinder Oberoi, director of banking and financial services, Australia at CGI.
“The industry’s experience and understanding of operating distributed ledger technology (DLT) in a critical environment is still evolving, with a number of different technical approaches as well as approaches around legal and risk management being tested, to ensure that both industry and regulators have confidence in the application of this new technology.”
In October 2022, there were warning signs that the ASX was struggling with the pressures to meet its expected deadline for the CHESS project when it confirmed that the go-live date of April 2023 was “no longer viable”.
At that time, the Reserve Bank of Australia (RBA) said it was “disappointed” by the delay. This comment was included in RBA and the Australian Securities and Investments Commission’s (ASIC’s) 2022 review of the exchange’s clearing and settlement facilities.
RBA and ASIC ran their first ASX review after the exchange’s power outage on 16 November 2020 when it was carrying out a major upgrade to its Nasdaq equity trading platform, ASX Trade. The Australian regulators viewed these operational incidents with significant concern.
Stormy seas?
By chance, Asset Servicing Times (AST) already had an Australian Focus written into the schedule for December 2022, before ASX’s most recent update broke. Speaking to AST before 17 November, Darren Speirs, head of portfolio solutions for APAC at Bravura Solutions, told the publication that ASX needed to “carefully manage the transition period.
We anticipate it could result in a number of project delays, with the need to reprioritise delivering, testing and implementing features,” he added. Speir’s prediction, shared in September, proved to be correct.
So, what happens next? Is ASX’s reputation beyond reproach? It would appear not everyone thinks the delay is quite so drastic as others. David Travers, CEO of the Australian Custodial Services Association (ACSA), says ACSA and its members note that this is a “significant setback for the ASX”, but affirm that it is imperative that the platform is built to “deliver the requirements expected, including functionality, process capacity and resilience.”
He goes on to say: “ACSA supports the ASX in ensuring that any change to CHESS is undertaken in a manner that minimises implementation risks.”
For background, the original CHESS was developed by ASX more than 25 years ago and enabled the dematerialisation of the cash equity market, a move to T+3 settlement — which was reduced to T+2 in March 2016 — and improved the efficiency and effectiveness of post-trade processing in Australia.
It is hoped the new blockchain-based system, when eventually live (and in whichever format), will improve data analytics and help users make informed predictions, all while helping Australia’s financial services adapt to an ever-changing market.
The essential ingredient for the increased resilience and functionality that ACSA’s Travers alludes to could well be time — something ASX’s most unforgiving critics would say it has already had plenty of. The other essential elements for the project’s progression are of course advances in technology and knowledge. Delving deeper, Bravura’s Spiers says: “the more nodes participating in DLT, the more robust it will be.”
“DAML smart contract language, open standards (ISO 20022) messaging, and availability for authorised users will allow for the evolution of an ecosystem of services that benefits the industry.” He continues: “These include portfolio reconstructions, better management of elective corporate actions, and the enablement of interoperability between different international exchanges.”
CHESS’ original go-live date was set for April 2022 but was pushed back to April 2023, mostly due to the impact of the COVID-19 pandemic on the industry throughout 2020 and into 2021.
Often nicknamed ‘Fortress Australia’, the country had some of the strictest COVID-19 restrictions in the world, with its last isolation rulings ending as recently as 14 October.
The Australian government closed international borders for more than two years and, throughout that time, imposed strict limits on movement between states and territories. This decision greatly reduced the enablement of collaboration and productivity on the CHESS system, though the virus cannot be blamed for ASX’s progression (or lack of) between 2015 and 2019.
Before ASX announced the pause to the CHESS project on 17 November 2022, market participants were mostly in agreement that the new go-live date of April 2023 was agreeable, despite the last two and a half years of upheaval.
As a closing note, it has not escaped this millennial that on the very same day the ASX announced its CHESS project plans were effectively dead and buried, Australia’s longest-running soap opera Neighbours was resurrected. The show was plucked back from the pop culture archives by television network Amazon Freevee, despite wrapping up 37 years of broadcasting in July. Only time will tell if and when ASX can manage its own kind of revival with the colossal CHESS project.
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