ASX backtracks on new CHESS clearing system and taps Accenture to conduct independent review
A fifth major delay will see the exchange operator’s clearing system rolled out a year later, with Accenture to conduct an independent review.
ASX’s fraught CHESS replacement project has yet again been snagged in a lengthy delay, prompting regulators ASIC and the Reserve Bank to brand the fifth revision in the implementation timetable as “very disappointing”.
New ASX chief executive Helen Lofthouse, who has only been in the job for three days, had the unpleasant task of revealing that completion of the most important upgrade of the nation’s financial infrastructure in decades would be delayed from April 2023 to late 2024, at the earliest.
She blamed scaling challenges and resilience requirements for the new clearing and settlement system, which uses distributed ledger technology.
Ms Lofthouse announced that consultancy group Accenture would conduct an independent review lasting about three months, with the findings to be made public.
The review would also identify the necessary steps to complete the project according to a revised timetable.
“There has been significant progress with CHESS replacement, but it is important we take time for a careful, independent review of the work done to date and the work still to do,” she said.
“CHESS is a critical system and we must have high confidence in the schedule to deliver new CHESS safely.”
The announcement on Wednesday follows several recent high-profile executive departures from ASX, including chief compliance officer Janine Ryan, whose resignation was announced on July 26.
Some traders brushed off the latest delay.
One said the minimal repercussions highlighted “the beauty of a monopoly”, while another said: “I think you’ll see a fast train between Sydney and Melbourne before the ASX goes live with their replacement for CHESS”.
The regulators overseeing the CHESS project, which is now likely to cost more than $300m, were peeved.
Australian Securities & Investments Commission chair Joe Longo said it was “very disappointing”.
“It is important that the Australian financial system is served well by contemporary infrastructure that is efficient, resilient, reliable and scalable to meet existing and future needs of the market and participants,” Mr Longo said.
ASIC and the RBA said in a joint statement that they continued to monitor ASX’s compliance with its clearing and settlement license obligations, including additional conditions imposed in November 2021.
The conditions included appointment of an independent expert to assess whether ASX’s assurance program for the replacement of CHESS was fit-for-purpose, identifying any shortfalls and regularly reporting to ASIC.
The expert, EY, is continuing to provide assurance over various aspects of the project.
The conditions imposed last November on three licenses held by the ASX followed a disastrous market outage a year before, which saw the value of equities traded collapse to $567m from a daily average of $10bn.
ASIC also required the ASX board to make individual executives accountable for the CHESS replacement.
Directors have to demonstrate consequences for executive pay if things go wrong, as well as alignment with the success of any remedial action and avoidance of further outages.
Mr Longo said at the time that ASX played a significant role in the economy, and ASIC acknowledged and supported the exchange’s ambition to use world-leading technology to replace the outdated CHESS system.
“The CHESS project will put us at the forefront of exchange technology globally,” Mr Longo said.
“This is what it’s all about, putting the right infrastructure in place to process more trades more robustly.”
Two broad themes, he said, had emerged from the completion of ASIC’s investigation into the ASX’s rolling, week-long outage – tighter supervision of the exchange by ASIC, and a requirement on brokers to invest in their systems to safeguard their ability to access alternative markets in the event of a similar outage.
Ms Lofthouse said on Wednesday that ASX continued to invest in the CHESS system, and had significantly increased its capacity, speed and resilience to cater for the increased trading activity in recent years.
“Existing CHESS remains secure and stable, and continues to perform well as we transition to a replacement CHESS system,” she said.
“I know our customers will be as disappointed as I am with the uncertainty about the timeline for completion.
“I apologise for the uncertainty and thank them for their close and constructive work with us on this important project.”
ASX group executive for security and payments Tim Hogben said in an update to CHESS users, software providers and others that the exchange was progressing with testing and technical accreditation with software providers, as well as working on a revised delivery schedule.
Discussions were underway on the timing of project milestones, including CHESS user and industry testing, operational readiness, market dress rehearsals and implementation.
“The review by Accenture will provide important input into this replanning activity,” Mr Hogben said.
“ASX understands that our customers and other industry stakeholders need clarity on what this review will mean for your preparation and readiness activities.
“Based on current information, we do not expect that the go-live date for the new CHESS could be before late 2024.
“But the independent review will provide further information to help us to determine and communicate a go-live date with confidence.”
Shares in ASX Ltd closed down 3.4 per cent, or $3.07, at $87.45 each.
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