Out with the old and in with the new.

That was the message from the Australian Securities Exchange (ASX) last Thursday, as it announced its intention to replace the existing CHESS (Clearing House Electronic Subregister System) with distributed ledger technology (DLT) developed by Digital Asset.

Introduced in the 1990s, CHESS has been used by the ASX to digitally record shareholdings and manage equity transactions in Australia.

The system, while revolutionary in the 90s, has slowly become outdated, and in 2015 the ASX announced it would replace or upgrade all of its main trading and post trade platforms.

In January 2016 the ASX revealed it had paid $14.9 million to acquire a 5% stake in Digital Asset with the intention to develop solutions for the Australian market using distributed ledger technology.

“There has been very little innovation in the post-trade services that operate around the world for the better part of 20 years,” said ASX Managing Director and CEO, Elmer Funke Kupper.

“Rather than replace CHESS with a new version that is based on the same legacy processes that operate in the market today, we should aim to re-engineer and simplify those processes to deliver significant benefits to the users of the market.”

The distributed ledger technology to be utilised uses the blockchain technology central to cryptocurrencies and ‘removes the middle man’ in transactions, making them cheaper, quicker and easier.

In a statement, the ASX said it had worked with Digital Asset extensively over the past two years testing the system to ensure it is suitable for the demands of Australia’s financial marketplace.

ASX and Digital Asset will continue to work together on the project before an anticipated launch in March 2018.

CEO of Digital Asset, Blythe Masters, said the system upgrade shows another real-world application for blockchain technology.

“After so much hype surrounding distributed ledger technology, today’s announcement delivers the first meaningful proof that the technology can live up to its potential,” she said.

“Together, DA and our client ASX have shown that the technology not only works, but can meet the requirements of mission critical financial infrastructure.”

Federal Treasurer, Scott Morrison, welcomed the planned change on behalf of the Turnbull government.

“We support the ASX's commitment to designing a system that does not raise barriers to access for non-affiliated market operators and clearing and settlement facilities,” he said.

“This development puts Australia at the forefront of digital innovation in financial markets and will strengthen our financial system through greater efficiencies."

Morrison, who earlier this year spoke about Australia’s emergence as a FinTech leader at an ACS event in Sydney, said the overhaul can help drive global innovation.

“It supports the Turnbull Government's clear commitment to improving the international competitiveness of Australia's financial markets and the efficiency of our financial sector.

“We will continue to take action to support initiatives by our innovative FinTech sector to ensure Australia is globally competitive in this rapidly growing market.”