The Australian Stock Exchange (ASX:ASX) has unveiled a $445 million budget for its revised attempt to replace the Clearing House Electronic Subregister System (CHESS), after its original blockchain-based project failed in 2022. The revamped system, which will be implemented in two phases by 2029, it will cost significantly more than the $250 million lost in the initial effort.
A troubled history
The CHESS system, first introduced in 1994, has long been considered obsolete. In 2016, ASX initiated plans to modernize the platform. By 2017, the exchange committed to building a blockchain-based replacement in collaboration with Digital Asset, with the intention of leading global markets in post-trade innovation. However, the project suffered from excessive customization, stakeholder dissatisfaction, and major flaws discovered during testing. In November 2022, ASX exited the initiative after investing $250 million and taking a significant write-down.
The ASX’s handling of the failed project has attracted legal scrutiny. The Australian Securities and Investments Commission (ASIC) began proceedings in August, alleging that ASX had misled investors in February 2022 by saying the project was “on track for go-live” in April 2023 and was “progressing Well”. ASIC argues that these statements lacked a reasonable basis and undermined confidence in the integrity of information provided by the market. ASX has denied any wrongdoing, arguing that its statements were based on information available at the time.
Costs and timing of the new project
The revised CHESS replacement will adopt a modular, cloud-based platform developed by Tata Consultancy Services and will be implemented in two phases:
- Version 1 (clearing services): Set for 2026, with costs estimated between $105 million and $125 million.
- Version 2 (settlement and sub-registry services): Expected in 2029, with costs ranging from $270 million to $320 million.
ASX CEO Helen Lofthouse attributed the higher costs to extended timelines, allowing for extensive testing and preparation in the industry. “We are committed to safe delivery and reliability, ensuring the system meets the needs of the market today and in the future,” Lofthouse said.
T+1 and future preparation
The updated system will initially retain the current T+2 settlement cycle, where trades are settled two business days after execution. ASX said the move to a shorter T+1 cycle, where settlement occurs within one business day, will only be considered after the full implementation of CHESS version 2 in 2029. The move to T+1, already adopted in the United States, it reduces risk and improves liquidity, but requires significant system upgrades and industry-wide preparation, making it a complex transition. ASX noted that T+1 may not be operational until 2030 at the earliest.
Market reaction
The announcement did not ease investor concerns, with ASX shares closing 4.3% lower at $66.18. The price was higher than expected, and analysts flagged risks associated with the long timeline and high costs, especially given the complexity of the project.
Despite these challenges, ASX remains committed to its strategy. “This is critical market infrastructure,” Lofthouse said, “and we need to make the appropriate investments to ensure it can serve the market effectively.”