ASX is first kid on block
AUSTRALIA’S stock market operator has unveiled plans to process share transactions using cutting-edge blockchain technology in what is being touted as a world first.
ASX Ltd will scrap its clearing house electronic subregister system (CHESS) in favour of distributed ledger technology, or blockchain – the technology at the core of cryptocurrency bitcoin. It plans to announce a timeline for the changeover in March.
It is believed to be the first major stock exchange to move to distributed ledger technology. While most finance companies pay no regard to bitcoin and other cryptocurrencies amid concerns about fierce volatility and a lack of regulation, many are taking blockchain technology seriously.
Banks and other financial institutions are looking into its potential to revolutionise transactions, potentially enhancing security, cutting costs and improving speed.
The technology allows trades and transactions to be recorded in many places simultaneously, giving transparency to deals without the need for central bookkeeping.
Despite the absence of a central database, it allows transactions to be made and tracked sequentially. The transactions are accordingly likened to building blocks.
Analysts say it has the potential to reduce the cost of trading, as everyone involved in a trade can work from one transparent and secure system.
“The new system will be operated by ASX on a secure private network where participants are known, ‘permissioned’ to have access, and must comply with ongoing and enforceable obligations,” ASX Ltd said in a statement.
Chief executive Dominic Stevens revealed the bourse operator had been undertaking tests with US blockchain developer Digital Asset over the past two years.
“(It) will enable our customers to develop new services and reduce their costs, and it will put Australia at the forefront of innovation in financial markets,” Mr Stevens said.
“While we have a lot more work still to do, today’s announcement is a major milestone on that journey.”
New York-based Digital Asset is led by chief executive Blythe Masters, a former executive at investment bank JPMorgan Chase who is best known for helping develop the financial instruments known as credit default swaps in the 1990s.
The financial crisis last decade was partly blamed on the lack of transparency and regulation in the market for those instruments.
Discussing the ASX announcement yesterday, Ms Masters said: “After so much hype surrounding distributed ledger technology, today’s announcement delivers the first meaningful proof that the technology can live up to its potential.”
“Together, Digital Asset and our client ASX have shown that the technology not only works, but can meet the requirements of mission-critical financial infrastructure.”
ASX Ltd said following testing, it had confidence in the functional, capacity, security and resilience capabilities of Digital Asset’s application.