The Australian Securities Exchange is on track for a decision in late 2017 on whether distributed ledger technology (DLT), inspired in part by Bitcoin’s blockchain, represents a suitable replacement for the ASX’s CHESS system.
CHESS — Clearing House Electronic Subregister System — provides clearing, settlement and asset registration services. The system was originally rolled out by ASX in 1994.
Although ASX has said CHESS continues to be stable and function effectively, the exchange has been mulling potentially replacing it with a system that may provide additional benefits to market participants.
ASX deputy CEO Peter Hiom said today that “building the next generation of equity post-trade services” is a key focus for the exchange.
ASX has set up a purpose built demonstration suite to “bring to life” the possibilities of distributed ledger technology “to help our stakeholders understand what is possible,” Hiom said during a briefing on the ASX’s first half results.
“We are now deeply engaged with brokers, custodians, listed companies, technology providers, and other service providers to understand what they want from the new platform.
“We are also providing regular updates to our regulators and other government agencies. Our aim is to work with all stakeholders to design a system that can reduce costs risks and enable greater innovation across financial markets.”
In January 2016 ASX announced it had taken a stake in Digital Asset Holdings, which specialises in developing blockchain-style distributed ledgers.
Hiom said ASX has made “good progress” with Digital Asset Holdings “to build base level functionality to facilitate cash market settlement [which] will enable us to test the capabilities of the solution to meet enterprise-grade requirements regarding scalability, speed, persistence and security.”
Late last year ASX announced that it had completed a prototype of a CHESS replacement based on distributed ledger technology.
The exchange concluded that DLT “met initial capacity tests for ASX’s scalability, security and performance requirements for a replacement system when deployed in a permissioned private network,” an ASX consultation paper issued in September states.
“We remain on track to bring together stakeholder requirements and our assessment of DLT, with a decision late in 2017,” Hiom said today.
“When CHESS was rolled out by ASX in 1994 it was ahead of its time, and still services the market well today,” ASX CEO Dominic Stevens said. “We’re currently investigating what will be the best technology with which to update our post-trade systems so that ASX may again lead the world.”
Over the last six months, ASX has conducted more than 50 presentations about DLT and post-trade technology and run more than 40 workshops on the issue, the CEO said.
ASX reported an uptick in its opex and capex during the half. The group reported capital expenditure of $20.3 million for the six months ending 31 December, up from $18.7 million in the prior corresponding period.
“Expenditure was focused on upgrading technology platforms, particularly the new futures trading platform, and is inclusive of distributed ledger technology development,” the company’s report for 1H17 stated.
The company’s new futures trading platform is on track to go live in March, ASX said.
The investment technology was also reflected in increased operating expenses of $90.1 million during the half, up $5 million.