The Australian Securities Exchange (ASX) has said it will implement a blockchain-based post-trade system from the fourth quarter of 2020, replacing the current Clearinghouse Electronic Sub-registry System (CHESS).
A public consultation document published by the ASX describes the new features planned, together with a two and a half year implementation plan. The document confirmed that ASX will use new distributed ledger technology to manage the Australian financial market and introduce 50 new features that will lead to cost reductions.
The new system will allow agreement participants on both sides of a bilateral transaction to pre-engage with the previous transaction in the settlement period without compromising the transaction for settlement. New York-based fintech company Digital Asset is building DLT products and is the main technical partner of the initiative.
For the past 25 years, CHESS has been the leading system for clearing, settlement, asset registration and other post-trading services critical to the orderly functioning of the market. ASX said: “CHESS remains stable and offers these services effectively. While there is no indication that CHESS will not continue to provide this level of service, ASX is replacing CHESS with distributed ledger technology (DLT) that will provide a wider range of benefits to a wider cross-section of the market.
In 2015, ASX began reviewing options to replace CHESS and ASX’s CEO at that time. Elmer Funke Kupper stated that a blockchain-powered platform was a serious candidate to replace CHESS. He said technology was a “once in 20 years opportunity” for technological renewal.
In December 2017, ASX’s current CEO and CEO, Dominic Stevens, confirmed a roadmap in which blockchain technology will replace the existing clearing and settlement system and, in the process, become the first stock exchange in the world to integrate decentralized blockchain technology.
“Migration testing will begin in the second quarter of 2020 and will culminate in migration dress rehearsals on weekends in preparation for implementation,” the consultation document added last week. “Successful industry-wide tests and dress rehearsal weekends are necessary for start-up and will allow for a main and back-up weekend to be scheduled, taking industry feedback into account.
ASX is seeking written comments from users and interested parties on the timing, testing and transition arrangements for the new system, and on the new business requirements in the plan by 22 June 2018.