ASIC sues ASX over trading system disaster

The corporate regulator is suing Australia’s stock exchange operator, the Australian Securities Exchange (ASX), in the Federal Court for allegedly misleading statements made in relation to the replacement of its clearing and settlement system, the Clearing House Electronic Subregister System (CHESS).

The Australian Securities and Investments Commission (ASIC) alleges that announcements made by the ASX on February 10, 2022, on its own platform misled the market when it claimed that the CHESS project remained “on-track for go-live” in April 2023 and was “progressing well”.

ASX Ltd is now being sued by ASIC over the failed implementation of its CHESS replacement project.Credit: Louie Douvis

“We allege the ASX misled the market and misled Australians about its progress,” ASIC Chair Joe Longo told reporters at a press conference in Melbourne.

“The delay and subsequent abandonment of the project to replace CHESS caused significant cost not only to ASX, but to market participants who rely on assurances as to the progress of the project and scheduled go-live date.

“This is a collective failure of the board and obviously the executive team at the time of ASX. We see this as a collective organisational failure.”

ASIC Deputy Chair Sarah Court said that in her view, ASX must accept organisational accountability for the alleged misconduct. She said ASIC is seeking declarations that there have been contraventions of the law, together with penalties which are yet to be determined.

“In this case, we are alleging that the country’s largest market operator made misleading statements to the market relating to a significant technology project that aims to replace critical national infrastructure. It doesn’t get much more significant than this,” she said.

“This case goes to the very heart of one of our important priorities for the year, and that is the technological and operational resilience of market participants, including market operators like ASX.”

ASX boss Helen Lofthouse said the bourse operator understood the serious nature of the allegations made by ASIC.

Helen Lofthouse, chief executive officer of ASX Ltd.Credit: Bloomberg

“We recognise the significance and serious nature of these proceedings. We cooperated fully with ASIC’s investigation and are now carefully reviewing and considering the allegations,” she said.

ASX said it will keep the market informed in accordance with its continuous disclosure obligations.

Last year, the ASX confirmed that ASIC was investigating whether the company or its directors breached corporate laws in their handling of the failed technology project to overhaul critical financial infrastructure.

Longo said ASX’s CHESS replacement is a technology project of fundamental significance, replacing critical national infrastructure crucial to the operation of the Australian economy.

He would not be drawn on whether blockchain was the right technology for ASX to pursue for the project. ASX has since abandoned its blockchain idea and instead chosen India’s Tata to redesign and replace the 30-year-old clearing and settlement system.

“This case is not about testing the original decision to use blockchain technology. We now know that is not going to be the solution. But this case is not about the original decision, it is about misleading the market about their progress.”

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.

ASX is due to report its full-year results this Friday. Its shares closed the session 3.7 per cent lower at $63.45.

The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion. Sign up to get it every weekday morning.