ASX pushes back roll-out of blockchain-based CHESS replacement

ASX Limited, which operates the Australian Securities Exchange, has pushed back the start date of its blockchain-based CHESS replacement, in response to stakeholder concerns.

‘Day 1’ of the ASX’s distributed ledger technology (DLT) platform, which replaces the decades old Clearing House Electronic Subregister System, will now happen in March 2021. It had been due to roll out during the last quarter of 2020.

ASX received 41 written submissions and feedback from a number of working groups, with stakeholders questioning whether the implementation window “was achievable given the significance of the technology change”, the company said.

The modified roll-out plan makes room for an additional six months of user development and testing.

“With these revisions ASX is confident that a successful market-wide implementation of the CHESS replacement system will now be achieved. We do not underestimate the challenge to replace CHESS and transition the market to the new system,” the ASX said.

In response to the ASX’s April consultation paper, CHESS Replacement: New Scope and Implementation Plan, users also requested earlier access to documentation and help in forming a “better understanding the potential benefits of a DLT-based system”.

“Overall, there was broad support for ASX’s approach and for the new features being implemented, although with differences about their relative priorities,” the ASX added.

The company is, however, sticking to its original plan of switching systems in a single cutover weekend, saying it was the “most appropriate solution and is lower risk than other alternatives such as running multiple systems in parallel”.

CHESS move

CHESS has been used to record shareholdings and manage the clearing and settlement of equity transactions in Australia since it was introduced in 1994. Although it continues to be “robust and reliable”, the ASX said last year, the exchange is taking the opportunity to replace it with “a next generation post-trade platform using contemporary technology”.

The decision to replace CHESS with a distributed ledger technology (DLT) based platform was made in December last year. The new platform is being developed by US software firm Digital Asset using its proprietary smart contract modelling language.

The new system will be operated by ASX on a secure private network where all participants are known, ‘permissioned’ to have access, and must comply with ongoing and enforceable obligations.

“The industry benefits of the DLT-based solution include: reduced risk, cost and complexity through improved record keeping; reduced need for reconciliation between multiple databases; more timely transactions and better quality source of truth data,” the ASX said.

The Australian Securities Exchange is set to be the first DLT-enabled stock exchange in the world. The technology is now being considered by other exchanges, including the Abu Dhabi Securities Exchange, and the Shanghai Stock Exchange, the world’s fourth largest, which announced plans to use DLT in July.