ASX CHESS replacement to be delivered in phases, with clearing first in 2026

The Australian Securities Exchange will deliver its Clearing House Electronic Subregister System (CHESS) replacement in two phases with clearing to be rolled out first in 2026, followed by settlement and sub-register in either 2028 or 2029, based on current estimates. This comes after the exchange derecognized the software created during the first iteration of the replacement project with Digital Asset in November 2022 after more than 8 years of development and delays. 

“We’re taking a staged implementation approach, which should reduce delivery risk compared to a single cutover approach, and also help stakeholders better manage their change load,” said Helen Lofthouse, chief executive officer of ASX, during the exchange’s H1 2024 earnings call on Thursday.

The replacement of ASX’s equities settlement platform is one of three technology modernization projects the exchange is undertaking. ASX will also look to update its derivatives clearing platform, which will initially upgrade the OTC clearing platform before replacing the futures clearing system. The exchange is also aiming to upgrade its trading applications. “The execution of these projects is enabled by investment in our technology platforms,” Lofthouse said. “We’re building modern technologies and practices, which should allow us to increase efficiency, quality and consistency between business lines to leverage automation and to improve the speed of delivery.” 

ASX announced in November 2023 that it had chosen Tata Consulting Services to run the CHESS replacement project. It will use the TCS Bancs product for the replacement. “This product is operated in multiple geographies by a range of major financial service providers, including exchanges,” Lofthouse said. 

Tim Whitley, ASX’s newly appointed chief information officer, previously told WatersTechnology that TCS has a tried-and-tested product in Bancs. In particular, TCS’s work with Euroclear Finland and Canada’s TMX Group was, among others, the most pertinent to ASX. “I think when ASX looked at what their options were, most all of the products were well behind how the Australian market operated,” he said. “And so we were pleasantly surprised with the level of progress that more than one vendor had made.”

Lofthouse echoed that sentiment during the earnings call, saying the product was a good fit for the Australian market and pointed to its use in Finland as evidence of the reduced need for customization. 

“Interoperability is another benefit which is facilitated by modular architecture,” Lofthouse said. “This will enable unaffiliated market operators, clearing and settlement facilities and other providers to access and interoperate with the individual clearing settlement and sub-register services using standardized interfaces.”

ASX estimates that the clearing portion of the replacement project will cost around AU$105-125 million. Specific costs and timings for the settlement and sub-register portions are expected to be announced in December 2024. 

The exchange took a AU$245-255 million (~$165-170m) pre-tax write-off after halting its CHESS blockchain project in late 2022. This came after a review by Accenture found problems with deadlines not being met, excessive complexity with what was completed, and issues in governance between ASX and Digital Asset, which was tasked with building the CHESS replacement. In 2016, ASX invested a reported $10 million, 5% stake in Digital Asset as part of its initial funding round, but on Thursday’s call Lofthouse said options are being explored regarding that stake. The exchange is also looking to reduce its use of consultants and contractors as part of its expense management review.

The Australian Securities & Investments Commission is currently investigating the initial CHESS replacement project, and Lofthouse said the exchange is cooperating fully.