The Australian Securities and Investments Commission (ASIC) has filed a lawsuit against the Australian Securities Exchange (ASX) over its ill-fated CHESS replacement project. In a proverbial clash of titans that pits the country’s top financial watchdog against the largest market operator, ASIC accuses ASX of misleading and deceptive conduct, claiming that the exchange misled the market about the progress of the project, which was set to replace the Clearing House Electronic Subregister System (CHESS) with a blockchain system.
ASX embarked on its ambitious CHESS replacement journey in 2015. The project was a bold step towards modernising the way trades are cleared and settled in Australia. By December 2017, ASX proudly announced it would swap out the aging CHESS system for a cutting-edge blockchain-based platform, developed in partnership with an organisation named Digital Asset. The new system promised to enhance security, scalability, and performance, while also catering to the evolving needs of market participants. It was also peak hype around blockchain with many other financial giants exploring the technology.
From 2016 onwards, the project seemed to be progressing as planned, with industry engagement, testing phases, and the gradual release of technical documentation. However, as the years continued to pass, the initial excitement began to wane. By 2022, ASIC alleges in its recent post, the wheels seemed to have come off the blockchain bandwagon, and ASIC alleges that ASX's assurances that the project was “on track” were, in fact, far from the truth.
ASIC's action centers on a series of announcements made by ASX in February 2022 where the exchange claimed the project was still on course for its April 2023 go-live date and was "progressing well." According to ASIC, these statements were misleading as at that point, the project was not progressing according to plan, and ASX allegedly had no reasonable basis for its promising updates.
ASIC Chair Joe Longo didn’t mince words, calling out ASX for what he described as a "collective failure" by the board and senior executives:
[The] critical importance [of the CHESS replacement] was all the more reason ASX needed to ensure it told the Australian public the truth about how the project was tracking and whether it would be completed on time.
This serves as a cautionary tale about the perils of overpromising and underdelivering—particularly when cutting edge technology of any kind is involved. Blockchain, often hailed as the future of finance, carries immense potential for transforming industries. However, as a foundational technology, managing stakeholders and complicated interfaces of ageing computer systems with a completely new way of moving information can be more expensive and time consuming than anticipated.
The ASX's new program to replace CHESS is still likely to utilise blockchain technology, but it will be a number of years before it is rolled out. There is no word yet on whether the ASX will defend the ASIC claim.
By S Pettigrove , L Higgins and Michael Bacina
Comments