The Australian Securities and Investments Commission (ASIC) and the Reserve Bank of Australia (RBA) have acknowledged a “foundational step” by ASX in getting its CHESS replacement program back on track with the unveiling of a new solution design.
After abandoning a blockchain-based replacement for the ageing CHESS system a year ago, ASX announced on Monday that it is now proceeding with a product-based solution that will be delivered by global technology provider Tata Consultancy Services (TCS).
ASX said that its chosen solution will provide a “reliable, supportable and scalable platform” which meets the needs of the Australian market now and into the future.
Responding to ASX’s announcement, ASIC chair Joe Longo said: “This is an important decision by ASX, but there is still a long way to go to deliver a CHESS replacement.”
“It will be critical for ASX to now focus on engaging with the market on the detailed design of the CHESS replacement program with a realistic and achievable timeline for implementation,” he added.
ASX said that stakeholder input was key to reaching its decision, including from the CHESS Replacement Technical Committee, the ASX Business Committee, and the recently established Cash Equities Clearing and Settlement Advisory Group.
In a statement on Monday, RBA governor Michele Bullock said that ASX’s announcement “sets a new direction for the CHESS replacement program”.
“The advisory group, under independent chair Alan Cameron, has played an important role in bringing the interests of the market as a whole into today’s decision,” she said.
“The advisory group’s input will remain critical throughout the implementation phase of the replacement solution. It will also be critical for ASX to address the findings from various external audits and reviews so that past issues with the program are not repeated.”
According to the advisory group, a product-based solution is deemed to be an appropriate option to support a safe and timely replacement of CHESS.
The group has recommended that ASX provide clear statements on the impact of its decision on the industry, including the benefits to the market of the selected solution and its commitment to building a system that is interoperable.
“I would like to thank Alan Cameron and the members of the Advisory Group for their work and advice,” Mr Longo added.
“I look forward to the Advisory Group’s ongoing role in providing input throughout the CHESS replacement program, and on other strategic clearing and settlement issues.”
As part of its announcement on Monday, ASX said the CHESS replacement project will now move into the next phase of design and implementation. Further stakeholder consultation is expected to commence in the first quarter of next year.
“This next phase of the project will be a multi-year undertaking and ASX will maintain our investment in the current CHESS platform to ensure it continues to operate efficiently and reliably until the replacement is implemented,” said ASX managing director and chief executive officer Helen Lofthouse.
ASIC and the RBA noted that ensuring the existing CHESS system continues to be maintained to meet ongoing resilience, reliability, integrity, and security requirements will be a continued focus of the two regulators.
“The replacement of CHESS is a complex and technical program of work. It is critically important that robust and transparent governance arrangements are put in place by ASX to manage the risks associated with such an implementation,” they added.
ASX has proposed to implement the new platform in two main releases. The clearing service will be delivered in the first release, which is expected to take place in 2026 at an estimated cost of between $105 to $125 million incurred over multiple years.
Meanwhile, the settlement and sub-register service will follow in a second release in 2028 or 2029, the cost of which will be determined by late next year following consultation.
The market operator noted that the decision to proceed with the product from TCS was reached following extensive evaluation of potential solution options and product vendors.
“The input from the business committee, the technical committee, and the advisory group has been critical in supporting us to proceed towards an outcome that will best serve the whole market,” said Ms Lofthouse.
“I’d like to thank all of the people who participate through these various forums for their contribution and I look forward to continuing our work together as we progress this next phase of CHESS replacement.”
Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.