ASIC’s advisory group order amid conflict of interest fears

ASIC has stepped in after complaints from brokers that the ASX had managed the project to its own benefit.

The market cop has intervened to force Australia’s bourse to better manage conflicts of interest on its bungled CHESS replacement project, ordering the ASX to set up an independently-chaired industry advisory group to better engage with stakeholders.

The regulatory intervention follows complaints from brokers and market participants that the ASX, which has a settlement and clearing monopoly, had managed the project to its own benefit.

The 29-year-old software – which is considered a critical piece of national infrastructure – is being redesigned after plans to build a new blockchain-based platform to handle clearing and settlement of trades was scrapped last year.

“ASIC’s initiative follows longstanding industry concerns over the adequacy of ASX’s stakeholder engagement and governance,” the securities regulator said.

“This includes ongoing concern with ASX’s management of intragroup conflict of interests.”

The proposed governance panel will be discussed at a roundtable in August, with ASIC chair Joe Longo presiding alongside and incoming RBA governor Michele Bullock in attendance. Twelve industry leaders have been invited to participate in that forum.

The advisory group will provide guidance on strategic issues relating to the clearing and settlement of cash equities trading and focus particularly on the ASX’s several times-delayed CHESS clearing and settlement project for which the company has booked a $250m write down.

“ASX’s effective engagement with industry is an urgent issue that must be resolved in order for the overall project to get back on track,” said ASIC chair Joe Longo.

“The establishment of an appropriate stakeholder advisory group for cash equity clearing and settlement matters is critical to the restoration of confidence in ASX’s decision-making and culture.”

In a statement, the company said it was supportive of the regulator’s request and is “preparing to develop” the new stakeholder group, which would advise its ASX Clear and ASX Settlement units on the impact of the replacement project to the industry, and on other key matters.

“ASX is committed to increasing transparency and enhancing stakeholder engagement,” ASX chief executive Helen Lofthouse said.

“We appreciate the facilitation provided by ASIC to support the establishment of the proposed stakeholder advisory group,” she said, adding that it would have “a highly strategic focus when it considers CHESS replacement and critical clearing and settlement changes.”

ASX’s existing Business Committee would work with the regulator-mandated group to “provide a solid foundation for market engagement at multiple levels” the company said.

The ASX Business Committee, which has been the bourse main liaising conduit for the project since it first touted the project in 2016, will meet on July 19 to discuss the appointment of an independent chair.

Cboe, formerly known as Chi-X, which runs a stock exchange that competes with the ASX but is also a clearing and settlement client, told a parliamentary hearing last month the ASX had designed the now-halted replacement project to protect its “moot” putting its own commercial interests ahead of those of the wider market.

Cboe also told the committee it expected to consider whether to become a competitor of the ASX in the clearing market once regulatory proposals to open financial market infrastructure to competitors are in place.

“The regulators should seek to ensure that ASX does not use its dominant position in those clearing and settlement functions to diminish competition,” Cboe legal counsel Michael Somes said.

The ASX has said it will decide and announce a new solution for the CHESS project in the last quarter of the year.