ASX opens after crisis meetings following glitch in settlements system

The accident-prone market operator ASX spent the weekend scrambling to fix a glitch in its settlements system and talking to angry market participants.

The trades entangled in the ASX issue are from Wednesday while Thursday’s trades also need to settle on Monday. Picture: NCA Newswire/Gaye Gerard

Accident-prone stockmarket operator ASX has narrowly averted the embarrassment of a trading outage extending into Monday morning, after working around the clock over the weekend to resolve a glitch that impeded the settlement of billions of dollars of trades.

The Australian stockmarket opened as normal on Monday at 10am but there will be a 30-minute extension to the usual 11.30am daily batch settlement, as those trades caught up in a breakdown of the ASX’s ageing settlement systems are dealt with.

Because the ASX trades are settled two days later, the trades involved in the ASX glitch are from Wednesday, while Thursday’s trades also need to settle on ­Monday.

In a video call with more than 170 market participants late on Sunday, executives from the equities market operator explained the reasons for the failures last week, pledged that the problem had been rectified and said normal trading would recommence on Monday, as well as the settlement of backed up trades. The ASX has also pledged to waive levies charged on late settlements.

The Reserve Bank was intimately involved with the ASX’s response over the weekend, and the corporate regulator also oversaw proceedings.

Amid a sell-off on Wall Street and local equities, and only hours before many investors traded for the final time before the Christmas and new year holidays, the ASX’s settlement system was hit with a technical glitch on Friday that prevented trades being settled and traders paid.

It was the latest IT breakdown for the nation’s equities markets operator following a high-profile, damaging outage four years ago that sparked regulatory action, a backlash from investors and key executive and boardroom departures from the ASX.

The ASX has pledged the market will reopen on Monday after a breakdown of its settlement systems last week led to trade settlements being delayed. Picture: NewsWire / Max Mason-Hubers

To calm investor ire over the latest IT glitch, late on Sunday ASX general manager of operations Suzy Munro and group executive, securities and payments, Clive Triance held a videoconference call with more than 170 equity market participants. They explained the reason for the settlement failure last week and how the ASX would deal with outstanding trades on Monday when the market opens.

“We are confident we will get through that,” Ms Munro told the participants. Mr Triance issued an apology for the ASX’s technical problem – a data file error – creating more work for stockbrokers on Friday and over the weekend.

The ASX executives faced anger from some brokers and market participants, with one seeking clarity about how much margin would need to be set aside for trades, given the greater risk firms were exposed to.

Mr Triance declined to answer, saying ASX would engage with each firm individually rather than providing a blanket approach.

“If ASX have failed to settle, failed to pay all the brokers on Friday, it would an absurdity that you would then put a larger market margin on brokers because of your failing. So I’d like ASX to give consideration to that, and the opportunity for all brokers in your bilateral meetings to have that same conversation,” said Leigh Conder, the operating chief of FinClear, which provides financial advisers and stockbrokers with trading, clearing and settlement services.

Another player asked whether ASX levies would be waived for late settlement of trades or if the system broke down again. The ASX executives assured them levies would not be applied in this ­instance.

“There’s a lot of uncertainty and a lot of risk,” as market participants figure out how to manage Monday’s trading, one player told The Australian on Sunday, on condition of anonymity.

In a statement on Sunday the ASX said it had identified the issue that was affecting batch settlement processes in the CHESS system and had implemented a resolution to restore service.

ASX chief information officer Tim Whiteley said the market operator recognised the significant disruption this caused on Friday and apologised for that.

“We were speaking to customers and stakeholders all through Friday and at points across the weekend” he said. “We acknowledge there were challenges and we appreciate all their actions to manage the issue.”

The ASX has implemented a plan to manage the additional ­volume of settlement and said it recognised that this might take longer than the usual end-of-day processing.

“We have continued to keep our stakeholders and regulators updated throughout this period. Our teams worked through the weekend and late into the night to address the issue. Our analysis showed that the technical issue related to an error in a data file and we did not uncover evidence of malicious activity from an external or internal source.”

In a statement on Sunday the ASX said it had identified the issue that was affecting batch settlement processes in the CHESS system. Picture: Britta Campion

A spokesman for ASIC said the corporate regulator and the Reserve Bank had been engaging with the ASX on the incident impacting the CHESS system.

“We are informed that the ASX has identified the issue and will implement a resolution, and that batch settlement is expected to complete tomorrow. The regulators expect the ASX will ensure the existing CHESS system will continue to be maintained to meet ongoing resilience, reliability, integrity, and security requirements.

“ASIC and the RBA will continue to monitor the situation and once the delayed settlement process is complete, we will engage with key participants and the ASX to understand the full impact of the system failure.”

The Australian understands the ASX considered four options ahead of a final joint decision with regulators late on Sunday afternoon. They included testing and running a batch settlement of trades overnight, settling trades manually, opening and running the market but not immediately settling the trades, and not settling trades and leaving each exchange to determine whether to open their respective market.

It is believed the technical data issue had to do with files that were not showing up properly when batch settlements were being processed by the ASX on Friday.

The latest ordeal marked another black mark for the ASX and its CHESS clearing and settlement system technology, which in 2020, at the height of the pandemic, 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 in the new Nasdaq Financial Framework release of the ASX equity trading system. This required the ASX to close the market for the rest of that trading day.

The ASX is also in the firing line for how it managed a now-shelved upgrade of CHESS that was to rely on distributed ledger or blockchain technology. That project was later abandoned and led to steep writedowns of $250m before tax.

The bungled project has also prompted ASIC to sue the ASX over its earlier CHESS replacement project, alleging the ASX knew it was going wrong but failed to inform investors before the writedowns were made and the project was axed. The ASX is defending the proceedings.