Australia’s corporate regulator is suing the ASX over its bungled Clearing House Electronic Subregister System (CHESS) replacement project, alleging it misled the market by announcing the project was on track in early 2022.
Six weeks after the alleged misleading statements, the ASX announced the technology project was likely to be delayed.
The share market operator commissioned an outside review later that year which confirmed problems including scalability of the blockchain technology, leading to the project being paused and writing down costs of $250 million.
“We allege that the true state of affairs as at 10 February 2022 was that the project was not ‘progressing well’, contrary to ASX’s announcement,” Australian Securities and Investments Commission chair Joe Longo said on Wednesday.
“The delay and subsequent pause of the project in November 2022 caused significant cost to ASX and market participants who relied on assurances as to the progress of the project and scheduled go-live date.”
The ASX said it cooperated with the regulator’s investigations and is considering the allegations.
CHESS was deployed in 1994 as the computer system used by the ASX to record shareholdings and manage the settlement of share transactions.
Work on a replacement began in 2015 and in 2017 the ASX announced it would use blockchain technology. After a series of delays, the ASX announced in February 2022 that the CHESS replacement “remains on track for go-live” in 2023.
Around six weeks later, the ASX announced there is a strong likelihood of a delay to the go live date. It engaged Accenture in September 2022 to review the project.
The review found only 63 per cent of the replacement system’s application software was complete and the timeline for full completion was uncertain.
In November 2022, the ASX publicly revealed the Chess Replacement Project had unravelled and would be paused, citing significant technology, governance, and delivery challenges.
Last year, the ASX announced a new staged implementation to the CHESS replacement that will be available from 2026 for clearing services and 2028 or 2029 for settlement services.
On Tuesday, ASIC filed civil proceedings in the Federal Court, alleging the ASX statements in February 2022 were misleading and deceptive because the project was not tracking to plan and ASX did not have any reasonable basis to imply it was.
“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,” Mr Longo said.
“Companies and market participants rely on what the ASX says about its operations to make their own decisions and investments. We expect the ASX to be a place to list and invest with confidence. When the ASX falls short, it has wide ranging consequences across the market.”
The ASX responded in a statement ot the market on Wednesday.
“We recognise the significance and serious nature of these proceedings,” ASX managing director Helen Lofthouse said in the statement.
“We cooperated fully with ASIC’s investigation and are now carefully reviewing and considering the allegations.”
The regulator is seeking declarations, pecuniary penalties, an adverse publicity order and costs against the ASX, but is yet to determine the penalty amount.
Do you know more? Contact James Riley via Email.