Australia’s corporate regulator is suing the Australian Securities Exchange (ASX) over allegedly misleading statements it made about the progress of a failed $250 million blockchain-based tech project.

The Australian Securities and Investment Commission (ASIC) has launched Federal Court proceedings against ASX Limited, alleging that Australia’s largest market operator made a series of misleading statements in relation to the replacement of its legacy Clearing House Electronic Subregister System (CHESS) with a blockchain-based solution.

The regulator is yet to determine the exact penalty it is seeking from the Australian Securities Exchange (ASX) in court, but will be going after declarations, pecuniary penalty orders, and other relief.

The case relates to statements the ASX made publicly about the status of its CHESS replacement project and the intended go-live date.

ASIC is alleging that at the time of making these statements, the ASX had no reasonable basis to believe they were true.

“ASX’s statements go to the heart of trust in the integrity of our markets,” ASIC chair Joe Longo said.

“We believe this was a collective failure by the ASX Board and senior executives at the time.

“Companies and market participants rely on what the ASX says about its operations to make their own decisions and investments.

“We expect the ASX to be a place to list and invest with confidence.

“When the ASX falls short, it has wide ranging consequences across the market.”

CHESS moves

ASX announced plans to replace its ageing CHESS system, which is the predominant clearing and settlement services system in the country, at the start of 2016.

In late 2017, tech firm Digital Asset was engaged to build a blockchain-based ledger and application for the new CHESS system.

But in March 2020, the planned launch date of April 2021 was delayed, and by the end of that year the project was listed as having a “red” status, meaning there were material risks to its delivery in the timeframe required.

In early February the following year, the ASX audit and risk committee was informed of this risk rating.

But on 10 February 2022, ASX published a number of statements that said the CHESS replacement project remained “on track for go-live” in April 2023 and that it was “progressing” well.

“The new technology is meeting its availability and stability targets for the test environments,” ASX said at the time.

“CHESS replacement remains on track for go-live and the industry test environment is open to software vendors, with customers joining in the coming months.”

It’s these statements that the ASIC has alleged were “misleading and deceptive” as “at the time of the announcements, the project was not tracking to plan and ASX did not have any reasonable basis to imply the project was on track to meet future milestones”.

“We allege that the true state of affairs as at 10 February 2022 was that the project was not ‘progressing well’, contrary to ASX’s announcement,” Longo said.

Six weeks after these statements were made, the ASX announced there was a strong likelihood that the CHESS launch date would be pushed back.

Soon after, Accenture was engaged to review the project, and found a number of “significant challenges” with the solution design and its ability to meet the requirements of ASX.

In November 2022, ASX scrapped the project entirely after seven years of work and about $250 million spent.

Longo said that the replacement of CHESS is a project of “fundamental importance”.

“The CHESS replacement project must be managed effectively and transparently,” he said.

“Failure to do so can lead to a lack of confidence in Australia as a market to attract investment.”