ASX is acting ‘with urgency’ over CHESS replacement, says its CEO

The nation’s exchange operator will give its stakeholders $70m in assistance as it works through plans for the much delayed replacement of its CHESS system as profit drops.

The ASX is “acting with urgency” in its moves to redesign the replacement for its long running CHESS clearing and settlement system, according to chief executive Helen Lofthouse.

The ocmpany’s half yearly results saw write offs on the CHESS replacement project send statutory profit down 71 per cent to $74m, but Ms Lofthouse said the ASX was moving ahead on many fronts to come up with a “revised solution design.”

She said this had included appointing a new project director, having discussions with more than 20 top stock exchanges around the world, looking at a wide range of potential vendors, and the establishment of a new technical committee that would meet monthly to ensure ongoing stakeholder engagement.

But she said it was “in everyone’s interests to be really thoughtful about this and make sure we get it right.”

The ASX has announced plans to give its stakeholders $70m in assistance as they worked through the much delayed replacement of its CHESS system, which was originally planned to involve a wholesale shift to a blockchain based platform.

Ms Lofthouse, who took over as chief executive in August last year, said there was no “off the shelf vendor solution” which could be bought which could meet all the requirements of the Australian market.

She said the ASX was moving to issue requests for information from a series of potential vendors and was expecting to announce its revised solution by the end of the year following the suspension of the original project last November.

But she refused to give any more guidance on when the new system could be implemented, arguing that this would be dependent on the type of system adopted.

The announcement of the $70m “partnership program” is reflection of the concerns stakeholders have had over the prolonged delays in the project.

The $70m includes a $15m rebate payment to be paid in August this year, and a “development incentive facility” for those involved in building the platform subject to them meeting project milestones.

Ms Lofthouse said the ASX was conscious that the project was taking longer than expected and “we really need to be working with our stakeholders closely.”

Ms Lofthouse said the ongoing discussions still included talks with New York based Digital Asset which initially was to be the main supplier of the new system.

The fall in the statutory profit was almost entirely as a result of the ASX’s move last year to write off $176m of costs in relation to its CHESS replacement system which was halted in November pending a review of the project.

More difficult market trading conditions, including a smaller number of new listings and capital raisings, kept ASX’s underlying net profit virtually steady at $250m for the period, generated on revenue of $499.5m which was down by 0.4 per cent.

The ASX said the fact that its revenue had held steady at a time of increasing uncertainty in world markets with rising interest rates, rising global inflation and the war in the Ukraine “reflected the strength” of its diversified operating model.

Helen Lofthouse took the helm of the ASX in August.

The ASX’s revenue from its markets operation was down by 2.2 per cent to $138.8m while its securities and payments business was down by 9 per cent to $133.5m.

But its revenue from listings was up by 5.4 per cent to $109.7m while revenue from technology and data was up by 8.3 per cent to $117.5m.

Ms Lofthouse said the result was a “pleasing performance” which was “achieved in a period of notable change for our organisation and volatility in our external environment.”

The ASX’s delayed replacement program has attracted criticism from regulators with the Reserve Bank and the Australian Securities and Investments Commission keeping a close eye on the developments.

Ms Lofthouse said there would be an update on the ASX’s progress on the CHESS replacement at a strategy day in June.

The half year saw a 6.8 per cent increase in expenses including depreciation to $173.9m.

The ASX earnings benefited from a 50 per cent increase in interest income to $32.6m.

Earnings before interest and tax were down by 3.6 per cent to $325.6m.

The write off and the lower statutory profit has not affected the interim dividend which has remained steady at $1.162 on a fully franked basis, in line with its 90 per cent payout ratio.

ASX shares rose by 23c in Thursday’s trading to close at $70.25.