Joe Longo

The project, first announced in 2016, was once seen as the poster child of innovation within the market infrastructure and post-trade space, being the first blockchain project launched amid an era of belief that the technology could revolutionise the plumbing of the financial services industry. 

Following years of delays, ambiguity and market criticism, ASX abandoned the project in November 2022.

In the new lawsuit, ASIC alleges statements made in ASX announcements on 10 February 2022 that the project remained “on-track for go-live” in April 2023 and was “progressing well” were misleading.

ASIC alleges these statements implied the project was tracking to ASX’s announced project plan, which included a go-live date of April 2023. ASIC alleges those representations were misleading and deceptive because, at the time of the announcements, the project was not tracking to plan and ASX did not have any reasonable basis to imply the project was on track to meet future milestones.

Joe Longo, chair of ASIC, said: “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.”

Longo added that ASX’s CHESS replacement is a technology project of fundamental significance, replacing critical national infrastructure crucial to the operation of 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.”

ASIC said it is yet to determine what penalty it will seek for the alleged contraventions.

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The Australian Securities and Investments Commission (ASIC) recently concluded its investigation into the November 2020 day-long equity exchange outage, caused by a software issue on the  refreshed ASX Trade system, which created inaccurate market data.  The technical issue coincided with the launch date for the upgraded ASX Trade system.

Following its investigation, ASIC imposed additional licence conditions on three licences held by ASX. The conditions are focused on mitigating risks for future tech upgrades, with specific emphasis on oversight of the CHESS Replacement Program, which is scheduled to go live in April 2023. ASX is upgrading its aging CHESS clearing and settlement system to Distributed Ledger Technology.

“The ASX outage was a very serious event, exacerbated by subsequent operational issues,” said  ASIC chair Joe Longo. “The imposition of these licence conditions will confirm that remedial actions are implemented appropriately and efficiently to address these operational issues – including for the critical rollout of the CHESS Replacement Program.”

ASIC’s report into the outage highlighted serious deficiencies in ASX’s and market participants’ ability to limit the outage’s impact on overall liquidity. Some of these deficiencies had already been highlighted in an earlier review by ASIC after a previous outage at ASX in 2016. “ASX and market participants must act to ensure that the market can function at all times, so that vital sources of capital are available to the economy,” said Longo.

ASX has agreed to address the recommendations of the independent expert report into the outage, which it expects to complete over the next 12 to 18 months. “We are pleased that ASIC’s investigation into the market outage is closed and that no breach of ASX’s licence conditions was found,” said Dominic Stevens, ASX managing director and CEO. “However, we will continue to invest to strengthen the quality of our infrastructure and reduce operational risk.”

Stevens said work to fulfil the new licence conditions is well underway, and that additional conditions would apply to its market and clearing and settlement licences.

“These new conditions relate to actions ASX is taking to strengthen its project governance and execution practices,” ASX said in a statement. In summary they involve: 

• addressing the independent expert recommendations following the market outage and appointing an independent expert to assess the remediation;
• appointing an independent expert to assess ASX’s assurance program for the implementation of the CHESS replacement program;
• while the program is ongoing, requiring attestations from senior executives and the Board about technology project readiness.

Where relevant, Stevens said ASX is applying lessons from the outage to its CHESS replacement and is strengthening the project by appointing an independent expert to assess the assurance program.

“I am proud of the work the team has done over the last five years to reduce outages and incidents across ASX by close to 90%,” he stated. “In addition, when the CHESS replacement goes live in April 2023, a significant upgrade program across all levels of our equities technology stack will be complete, with the average age of our technology dropping from over 13 years old to four years old.”

While no process can eliminate all possibility of technology incidents, Stevens said ASX’s continuous improvement programmes had contributed to a significant reduction in incidents over the last five years.

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On 13 March, Australia’s equity market exceeded the number of trades that could be processed reliably in a single day, and while there were no market outages, the development resulted in a backlog of work for exchanges and trading participants.

The Australian Securities and Investment Commission (ASIC) said shortly after on 16 March that nine large equity brokers would be required to reduce the number of trades executed by up to 25% from the levels executed on the 13 March. Upon confirming the restrictions, the ASIC warned that if the number of trades continued to increase, processing and risk management capabilities of firms and exchanges would be further strained.

In its most recent update, the ASIC revoked the restrictions on the nine brokers and reiterated its expectations for all equity market participants to ensure the number of trades matched from their orders can be handled by internal processing and risk systems, as well as clearing and settlement operations. ASIC said the measures should include adjustments to algorithms and intraday monitoring trade counts, ultimately to reflect understanding and awareness of market-wide capacity constraints.

“We understand that ASX, Chi-X and many market participants have taken steps to enhance their capability to manage large trade days,” the ASIC said. “This is important because while the levels of 13 March have not been exceeded since, there remains a real risk, particularly if equity markets experience further days of elevated trading volumes.”

The Australian Financial Markets Association (AFMA) welcomed the latest guidance from ASIC, which lifted the trading restrictions on the nine brokers, highlighting that the Australian equity market is an important source of capital for the country’s businesses and venue for investors to trade listed shares.

“ASIC’s related decision to revoke its directions to nine large market participants to limit the number of trades they executed each day is timely and will remove an artificial and ad hoc constraint on market transactions,” AFMA said. “AFMA acknowledges the steps taken recently by market participants, ASX and Chi-X to ensure that the equity market remains resilient during periods of exceptionally high-volume trading.”

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The Australian Securities and Investments Commission (ASIC) released an initial report on the outage, in which a hardware malfunction had stopped equities trading for most of 19 September.

ASIC stated: “A general lack of confidence on the day resulted in trading drying up, with very little liquidity shifting to Chi-X’s competing market. A key benefit of market competition is the availability of an alternative market when ASX is unavailable.”

ASIC recommended a number of initial steps ASX should adopt to prevent another failure, including reviewing its operational risk arrangements and reviewing its communication strategy.

It also called on market participants to review their arrangements for dealing with market outages, and reviewing their own system-preparedness for managing such outages.

ASIC said it would launch a wider review in 2017 of the operational and technological risk management procedures at the exchange.

Days after the outage, newly appointed CEO Dominic Stevens said the outage was “unacceptable to the market and unacceptable to ASX.”

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The Depository Trust & Clearing Corporation (DTCC) has announced it will reduce fees for its global trade repository (GTR) service in Singapore and Australia.

Clients leveraging its GTR service for the Monetary Authority of Singapore (MAS) and the Australian Securities and Investments Commission (ASIC) transactions will see fees reduced by up to 20%.

DTCC said the amount fees are to be reduced would depend on “volume and/or commitment term.”

Regional head of GTR for DTCC in Asia, Peter Tierney, said community adoption and its utility model mean prices can be reduced as efficiencies are gained.

DTCC’s GTR was initially launched in 2012, with over 7,000 firms globally and 500 in Asia using the service.

The pricing change is to take effect on 1 October. 

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