The replacement of CHESS with a blockchain solution would not spell the end of financial intermediaries within capital markets, according to the ASX.
Speaking at the 2016 Stockbrokers Conference in Melbourne yesterday, ASX deputy chief executive Peter Hiom spoke about the benefits of the replacement of equity settlement platform CHESS with a blockchain-powered 'distributed ledger'.
The ASX invested $14.9 million in US firm Digital Asset in January. Digital Asset is working with the ASX to develop a blockchain solution to replace CHESS, with a decision to be made in 2017, Mr Hiom said.
"If we can create a single source of truth that we all trust, and address the double spending problem, the application of blockchain to our equity market has the potential to reduce the complexity of existing post-trade reconciliation processes and significantly reduce costs," Mr Hiom said.
However, Mr Hiom was quick to reassure the audience of stockbrokers that a blockchain solution would not spell the end to the current trading environment.
"The claim of some observers (usually not from financial markets) is that this same public bitcoin-blockchain could be applied to capital markets to enable transparent, peer-to-peer, real-time settlement without the need for financial intermediaries," Mr Hiom said.
"But this is not the world we live in - nor should it be. Trust and confidence are cornerstones of our financial markets. It is why they are highly regulated," he said.
As far as the ASX is concerned, the application of blockchain to Australian financial markets would involve a secure private network – rather than the public network used for bitcoins.
"It is not that different to the world we live in today – it’s just that the underlying database technology is different. It doesn’t sound that exciting when you put it that way, but actually it is," Mr Hiom said.
"As I mentioned earlier, when you create a single source of truth, a whole range of other things then become possible," he said.
The ASX has established a 'showcase space' called acceler8 at its head office in Sydney where it plans to demonstrate its blockchain platform, Mr Hiom said.
"We wish to speak with all interested parties and take the time to get it right. We look forward to welcoming you to acceler8 in the near future," he said.
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