ASIC finds ASX ‘was not ready to go live’ with market upgrade, after November outage

A probe into a major stocks outage finds operator ASX was not ready to ‘go live’ with a system upgrade, but did so anyway.

ASX has apologised after it pushed through a market upgrade when it was not ready, causing an outage. Picture: NCA Newswire/Gaye Gerard

The ASX pushed ahead with a major upgrade of its system when it was not ready to go live, sparking a major outage for a full trading day last November, according to an investigation into the affair by the corporate regulator.

The findings by the Australian Securities and Investments Commission follow a review of the daylong outage by independent expert IBM Australia.

The report concluded ASX fell short on 17 of 75 benchmarked industry practices when assessing whether it was ready to go live with its market upgrade.

Significantly ASIC concluded that the ASX Trade system upgrade “was not ready to go live” considering the stock exchange operator’s “near zero appetite” for service disruption.

“This was the case even though the formal implementation readiness processes were completed and verified by multiple parties without objection to go live,” ASIC said.

The day long outage was unprecedented in modern era of the exchange and drew intense scrutiny from the Reserve Bank of Australia given the ASX’s place in the nation’s payments system. It also raises questions about the ASX’s planned upgrade of its core trading system.

ASIC noted seven key factors that suggested the platform was not ready to go live, noting there were gaps in end-to-end test coverage, as well as a quantity of open defects.

“The project was provided with and had access to sufficient financial, time, people and technological resources at all stages of delivery to meet its objectives,” ASIC said.

“However, IBM also concluded the project could have benefited from additional and independent scrutiny.”

The report also found there were gaps in the rigour applied to the project delivery risk and issue management process expected for a project of this scale.

ASIC concluded risk and issue management of the project as well as compliance to ASX practices, the project requirements and test strategy and planning “did not meet accepted industry practices”.

The update from the corporate regulator notes the ASX has agreed to address the recommendations of the review and apologised for the market disruption.

The Reserve Bank of Australia also noted its concern with the ASX outage.

“The regulators view operational incidents of this nature with significant concern,” the RBA said.

The RBA has supervisory responsibilities for ASX’s four clearing and settlement facilities in the ASX Group.

ASX will also apply the insights of the report across the whole group to ensure its existing and proposed programs, including the long running CHESS replacement program, are executed without further failures.

ASIC will consider the review and ASX’s response.

The market outage also sparked a further review by ASIC into whether ASX met its obligations under its Australian Market Licence.

ASIC is engaging with market operators, participants and institutional investors over the impact of the market outage, which did not see trades rerouted to the CHI-X trading system.

ASIC chair Joe Longo said it was disappointing the ASX had failed in its market upgrade.

The independent expert found that ASX met or exceeded leading industry practices in most areas, but the conclusion that the project was not ready for go-live is very disappointing,” he said,

“ASX has acknowledged and accepted the need for improvement.”

“We do, however, require assurance that these improvements are implemented effectively and result in an overall improvement to ASX’s enterprise wide project management practices.”

The ASX, in its response to the ASIC findings, said it believed the upgrade was ready to go into action, noting its technology provider NASDAQ had assured the exchange it was stable.

ASX chief executive Dominic Stevens said it was disappointing the exchange failed.

“ASX takes the resilience and reliability of its markets extremely seriously. That’s why we immediately engaged with our regulators to commission this external review and will address all of its recommendations,” Mr Stevens said.

“It’s also why we’ve already taken action to change our project delivery practices. The changes we’ve made to our management structure are aligned to these objectives.”

The ASX is developing a detailed response plan for execution over the next 12-18 months and will commission an independent review into how well it met its recommendations.

The ASX has taken several steps in the wake of the outage, including refining its work practices for new service release with NASDAQ.

The exchange has also shaken up its management structure in the wake of the market failure, reorganising under four business areas.

Under the new structure, the former equity trading business now reports to Helen Lofthouse.

The ASX has also reviewed its assurance plan for its CHESS replacement project, covering project governance, testing, and risk and issues management.

This comes after the ASX pushed out the deadline by a year in the wake of the market outage.

The ASX spent $109.8m on capital expenditure last financial year, with another $105-115m budgeted in the coming financial year, with a large part to cover the CHESS development.

The exchange has also guided an expected 5-7 per cent lift in general expenses in the coming year, noting part of the cost was “associated with our program of improvement following the equity market outage”.