The Australian Stock Exchange (ASX) has admitted it misled the market over the troubled replacement of its core CHESS clearing system and will pay a $20.5 million penalty.
The Australian Securities and Investments Commission (ASIC) on Monday morning announced that it had reached an agreement with ASX, nearly two years after it launched legal action over how the market operator communicated the state of its CHESS replacement project.
The project aimed to replace the ageing Clearing House Electronic Subregister System (CHESS) with a new platform based on distributed ledger technology.
It began in 2016-17 with a planned go-live date of April 2023.
But ASX ultimately abandoned the project in late 2022 after it had already spent about $250 million.
‘Progressing well’
The case centres on a market update issued by the ASX in February 2022, which stated that the blockchain-based CHESS replacement project was “progressing well”.
But ASX will admit in Federal Court that when this statement was made, the project was not on track to launch in April the following year as planned, and had been classified internally as ‘red’, meaning there were “significant unresolved issues or risks”.
Despite saying it was “progressing well”, six weeks later the ASX revealed that its go-live date would likely be delayed, and it was later paused then ultimately scrapped.
ASX and ASIC have applied to the court agreeing to a penalty of $20.5 million, with ASX to also pay $3 million of the regulator’s legal costs.
It brings the total cost of the bungled CHESS replacement project to at least $270 million.
“ASX has admitted to making a misleading statement in relation to critical market infrastructure at the centre of Australia’s financial system,” ASIC chair Sarah Court said in a statement.
“These admissions concern the accuracy of disclosures to the market about a significant and complex project that carried real consequences for confidence, planning and investment across the market.
“Accurate and timely disclosures are fundamental to maintaining trust in Australia’s financial markets, particularly from entities that operate core market infrastructure.”
Now on ‘firmer footing’
ASX chair David Clarke said the organisation accepts responsibility for lessons from the project and is now on “firmer footing”.
“The market must have confidence in what ASX says about its operations as these statements can be relied upon to make decisions,” Clarke said in a statement.
“When we stopped the CHESS project in November 2022 to reassess our whole approach, that tested market confidence in ASX and called into question the nature of statements previously made.
“As the market operator and a steward of critical market infrastructure, our words matter. I am sorry ASX fell short.”
The CHESS replacement program was originally developed in partnership with technology firm Digital Asset, with the goal of modernising the existing system using distributed ledger technology.
The project later experienced significant issues and repeated delays.
In early 2022 Accenture was brought in to review its progress. It found “significant challenges” and a series of “deficiencies” in the approach.
The project was eventually scrapped in November 2022.
A year later, ASX announced a revised replacement strategy, splitting delivery into two phases: clearing services first, followed by settlement and subregister services.
The first release went live in April this year.
ASIC began investigating the matter in early 2023 and commenced legal proceedings in August 2024.
Late last year, the former head of trading technology at the ASX sued the market operator, alleging he was subjected to bullying and passive aggression after raising concerns about the CHESS replacement project.
