ASX set to issue mea culpa on embarrassing December outage
The ASX is set to finally provide aggrieved participants and customers an explanation this week for the damaging and chaotic outage that occurred in the days just prior to Christmas.
The sharemarket operator sent out an email in recent days again apologising and flagging it would provide further information on the incident by January 23.
ASX participants and customers are expecting a mea culpa and given the chaos and disruption they endured just days before Christmas, a detailed explanation of the incident should be forthcoming.
The local bourse was deemed to be in an “emergency situation” on December 20 when it was unable to settle and clear trades from two days prior. The ASX works on a timetable where trades occur and are settled two days later, known as T+2.
The incident in late December reflected an embarrassing chain of events for the ASX that left stockbrokers having to scramble to fork out capital to cover their clients’ trades, and regulators again questioning whether the ASX is capable of managing the market in an efficient and resilient way.
Regulators are demanding answers alongside market participants, and rightly so. About 170 employees of stockbroking firms and other participants joined a video call conducted by the ASX late in the afternoon on December 22, a Sunday, as they sought clarity about whether the ASX would open the following day.
ASX representatives gave an assurance it would, albeit with some delay to the daily batch settlement, but little by way of explanation was provided at the time as to the key cause of the major incident and the inability to settle trades.
At the time, a data file error was identified as part of the issue that was hindering the settlement of trades.
It was yet again another blight on the now Helen Lofthouse-led ASX and its already tarnished reputation.
This column understands the ASX submitted a voluminous report to the Australian Securities and Investments Commission and Reserve Bank last week, covering the December incident in detail and unpicking what went wrong. That would include confidential information stemming from a technical audit of what occurred.
Regardless of the contents of the report, relations between the ASX and ASIC and the RBA are clearly strained. Further enforcement action or consequences for the ASX may follow, particularly given the dent the latest incident has caused to confidence in Australia’s financial markets.
As one market participant told this column in late December: “We are the laughing stock of financial markets”. He said the latest incident showed there were risks the ASX may not meet a 2029 deadline for its latest planned upgrade of the 30-year-old Clearing House Electronic Sub-register System (CHESS).
That’s the clearing and settlement system which underpins the operation of the exchange.
ASIC last year launched legal action against ASX relating to the exchange’s prior bungled CHESS upgrade, which drew on blockchain technology and led to $250m in writedowns. The regulator alleges the exchange failed to make adequate disclosures to investors regarding the real state of the project.
ASX is, however, defending the court action.
The ASX’s email to participants and customers late last week on the December incident said: “Once again, we recognise the significant disruption caused by the incident and we apologise to our customers.
“There has been significant work done to investigate and document the incident, including detailed analysis of the root cause, and the corrective actions.
“We’re aware stakeholders are seeking further information including steps that we have already taken to prevent recurrence of the incident and steps being taken to support CHESS participants impacted by the incident.
“We wanted to assure you that we are working through these topics.”
The outage in December meant the ASX came perilously close to having to delay the market open on the Monday prior to Christmas, or even having to stop trading altogether or halting settlement for another day.
The December issue, which happened during lighter trading volumes, was the latest in a string of technology-related blunders for the ASX.
In 2020, at the height of the pandemic, the exchange struggled to cope with huge volumes being traded. In a separate IT meltdown shortly after the market opened on November 16, 2020, a software issue causing a data problem was detected which required the ASX to close the market for the rest of that trading day.
Regulators and market participants are demanding better from the ASX, and the exchange cannot rest on its laurels, after putting participants and its own investors through a tumultuous period marred by strategic missteps.
There’s a lot at stake here including overall confidence in Australia’s financial markets and the robustness of the systems underpinning them.
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