Overdue checkmate for ASX project to replace CHESS

The directors should have been putting the project leaders under close scrutiny, asking the tough questions that would get to the bottom of the project and assessing its progress with the help of independent technical experts.

In 2020, I went to the Australian stock exchange (ASX) for a private briefing about its plans to update its core trading systems. The idea was to brief me on the project and get back to me when the new technology was ready to go live later that year, at which point I would write a story on it.

I’m still waiting to hear back .A magazine editor had asked me to write a story on the ASX’s plans to develop a blockchain clearing and settlement system that facilitates the exchange of money and stocks between buyers and sellers.

The ASX wasn’t ready to talk about the project to replace its ageing CHESS system publicly, but was happy to provide an off-the-record briefing ahead of any public statements.

I am not a technology expert but as a business journalist I have a good understanding of how technology can improve the way a business operates and serves its customers.

Even so, I found the ASX briefing from its tech leaders to be mindbogglingly complex. They were unable to articulate a clear vision of what the new clearing system would achieve and how it would get there, despite working on it since 2017.

It’s always a red flag when a business strategy or a project is so complex it can’t be explained to a moderately intelligent generalist like me.

It came as no surprise this past week when the ASX stopped the project and announced it is writing off the quarter of a billion dollars spent on its development.

The technology was going do drag the ASX’s settlement process into the 21st century, where transactions would take just seconds. Currently, settlements are T+2, the trade date plus two business days. If you sell shares on a Monday, you don’t get the cash until Wednesday.

The project’s failure — after the go live date was put back at least five times — is a blow to the ASX’s credibility and to Australia’s reputation as a modern financial centre.

There are two big issues with this disaster.

The first is why the ASX opted to go for new and unproven blockchain technology. While blockchain has great potential to revolutionise financial services, its adoption remains difficult and in 2022 it still isn’t widely used. This applied even more so in 2016.

It is questionable why the ASX, with its monopoly licence over the clearing and settlement of share and derivative trades in Australia, chose to embark on such a speculative project for this nationally-important piece of financial infrastructure.

Last week, the ASX said there was still no clear completion date. The project couldn’t guarantee the scalability and stability required for this crucial piece of financial infrastructure and the ASX was having “issues” with how it worked with its software supplier. A report by consultancy Accenture also highlighted significant gaps and deficiencies with the design of the system and ASX’s ability to deliver it.

This brings us to the second and more important issue — why it took so long for the ASX to pull the pin on the project.

This is a huge failing on the part of ASX executives and its board. They should have been keeping an eagle eye on this project, receiving regular updates from project leaders. They probably were, but their failure to act sooner begs the question of whether they were getting the full picture or acting quickly enough on the information they were receiving.

It is no longer good enough for a company board to claim it doesn’t understand technology. The directors should have been putting the project leaders under close scrutiny, asking the tough questions that would get to the bottom of the project and assessing its progress with the help of independent technical experts.

The ASX has several directors who have been with the company for six or seven years, with the tenure of one dating back to 2009. Shareholders will be asking questions about their future on the board and their ability to provide governance and oversight of a company whose success is so dependent on technology.

Eventually the company called in Accenture, whose independent review led to the shelving of the project.

But as recently as February former ASX chief executive Dominic Stevens was promising a go-live date of mid next year. It was left to new ASX chief executive Helen Lofthouse, who took the helm in August, to announce the bad news to the market.

Regulators were furious after the revelations, which potentially threatens the ASX’s market monopoly. In an unusually blunt statement that suggests his patience is running out, Joe Longo, the chair of the Australian Securities & Investments Commission said: “ASX has failed to demonstrate appropriate control of the program to date, and this has undermined legitimate expectations that the ASX can deliver a world-class, contemporary financial market infrastructure.”