TCS to rebuild botched CHESS replacement project by 2026

The ASX has chosen an Indian tech giant to design and rebuild its botched CHESS replacement project, committing to deliver it in 2026.

ASX chief executive Helen Lofthouse.

The Australian Stock Exchange has chosen Indian tech giant TATA Consultancy Services to design and rebuild its botched CHESS replacement project and has committed to deliver a clearing service in 2026.

The announcement comes 12 months after the bourse last November dumped a long-delayed plan to replace its two-decade old equities clearing and settlement systems with blockchain technology.

As the only operator of clearing and settlement services of equities in Australia, CHESS, which stands for the Clearing House Electronic Subregister System, is considered a critical piece of market infrastructure.

The ASX on Monday said Accenture had been hired as solution integrator for the project, which will now be handled in two stages. First, the bourse expects to deliver clearing services in 2026 at a cost of up to $125m.

That will then be followed with settlement and sub-register services delivered in a second stage by 2028 or 2029, for which the cost has not been determined.

“This next phase of the project will be a multi-year undertaking,” ASX chief executive Helen Lofthouse said.

“ASX will maintain our investment in the current CHESS platform to ensure it continues to operate efficiently and reliably until the replacement is implemented,” Ms Lofthouse added.

The ASX has picked TATA to rebuild the CHESS replacement project. Picture: NCA Newswire /Gaye Gerard

Ms Lofthouse explained this meant the ASX will run two clearing services from 2026.

None of the project’s phases will include the abandoned blockchain technology that led to a $250m write-down last year.

The estimated cost for the first clearing phase of the project is between $105m and $125m, but the scope, timing and cost of the second settlement and sub-register will be determined in late 2024, following stakeholder consultation.

The ASX plans to issue a corporate bond of between $200m and $300m to fund its capital expenditures.

The securities exchange regulators — ASIC and RBA — in a joint statement said the product-based solution announced by the ASX was a “foundational step” in getting the CHESS replacement program back on track.

“This is an important decision by ASX, but there is still a long way to go to deliver a CHESS replacement,” ASIC chair Joe Longo said.

“It will be critical for ASX to now focus on engaging with the market on the detailed design of the CHESS replacement program with a realistic and achievable timeline for implementation.”

The ASX will hold “formal” consultation with stakeholders starting early next year.

The Advisory Group, which was forced upon the ASX by the regulators to add a layer of oversight to the ASX’s post-trade systems, had considered a product-based solution was an “appropriate option to support a safe and timely replacement of CHESS”, the regulator said.

“Today’s announcement sets a new direction for the CHESS Replacement program,” RBA governor Michele Bullock said.

“The Advisory Group’s input will remain critical throughout the implementation phase of the replacement solution. It will also be critical for ASX to address the findings from various external audits and reviews so that past issues with the program are not repeated.”

ASX shares closed 1.7 per cent higher at $57.8 on Monday, while the broader market was up 0.1 per cent.

Equity analysts at Jarden acknowledged the decision was a “positive strategic step forward” for the ASX. They added, however that “the lengthy implementation timeframe and lingering uncertainty over medium-term operating cost and capital expenditure implications continue to cloud the cost outlook”.

The ASX told investors in a briefing that TATA Consultancy Services had been selected because of its strong operational track record with a “mature product” that is used by large institutions around the world.

The ASX will use TATA’s BaNCS financial software solution, which the company said offers a “modular technology platform for clearing and settlement services”.

The product will provide a reliable, supportable and scalable platform which meets the current and future needs of the Australian market, it said.

“We are actually really pleased with the product that we identified,” Ms Lofthouse added.

Originally published as TCS to rebuild botched CHESS replacement project by 2026