The Australian Securities and Investments Commission (ASIC) has initiated legal proceedings in the Federal Court against ASX Limited, the country’s largest market operator, accusing the company of making misleading statements regarding its Clearing House Electronic Subregister System (CHESS) replacement project.
ASIC contends that ASX misrepresented the status of the project in announcements made on 10 February 2022, where the company stated that the CHESS replacement remained ‘on-track for go-live’ in April 2023 and was ‘progressing well.’ According to ASIC, these statements gave the impression that the project was proceeding according to plan and would meet the announced milestones, including the scheduled launch in April 2023. However, ASIC alleges that these representations were misleading and deceptive, as the project was not on track at the time, and ASX had no reasonable basis to make such claims. On 28 March 2022, just six weeks after making those statements, ASX announced a likely delay in the April 2023 go-live date. Subsequently, ASX engaged Accenture to review the project, which identified significant challenges with the solution design. As a result, ASX decided to pause the project, leading to a $250 million write-down in costs.
ASIC Chair Joe Longo commented: “ASX’s statements go to the heart of trust in the integrity of our markets. 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.”
Longo emphasised the significance of the CHESS replacement, describing it as a critical technology project with substantial implications for national infrastructure and the Australian economy.
“Its critical importance 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,” he said. “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. The delay and subsequent pause of the project in November 2022 caused significant cost to ASX and market participants who relied on assurances as to the progress of the project and scheduled go-live date.”
He continued: “The CHESS replacement project must be managed effectively and transparently. Failure to do so can lead to a lack of confidence in Australia as a market to attract investment.”
ASIC has not yet determined the penalty it will seek for ASX’s alleged breaches. This legal action follows ASX’s recent payment of a $1,050,000 penalty on 7 March 2024, following an ASIC investigation into its compliance with market integrity rules.
Andrew Carrier, Member of the Executive Committee at Quant, specialists in distributed ledger technology and interoperability for financial institutions, comments:
“ASX’s blockchain project has been described as a ‘Frankenstein’, but the promise this technology shows for use in the capital markets makes it a beast worth taming. ASX’s project management issues were compounded by the fact that they were building their own blockchain from scratch, when public and permissioned blockchains, tested and validated in real-world scenarios, already offer scalable and secure solutions that can be tailored for financial services.”
He continues: “The smart move is to use reputable, low-code tokenisation platforms that deliver enterprise-grade tokens and secure smart contracts without hefty price tags. We always say to start small, test, iterate, and then scale – just like successful CBDC pilots. Firms starting out with blockchain can also just complement their existing infrastructure with digital asset capabilities. By adding an overlay, firms can trade digital and traditional assets side by side without disrupting current capital market flows. Once adoption hits critical mass, it is then possible to transition to the new technology and phase out legacy systems. No big bang needed, no day-to-day disruptions. Blockchain’s potential is immense, let’s get it right.”
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