ASX directors and management are under ASIC investigation for possible company law breaches

The corporate regulator has launched an investigation into the ASX’s failed CHESS replacement program due to ‘suspected contraventions’ of company laws.

The corporate regulator is investigating the ASX, its directors and management for “suspected contraventions” of company laws in relation to the CHESS replacement program which has had a cost blowout and delays.

It brings into potential legal conflict the nation’s most powerful corporate regulator, the Australian Securities and Investments Commission, and stockmarket operator the ASX.

ASX is responsible for the nation’s $2.5 trillion equities market and is the key conduit for share investments for retail investors, institutions and superannuation funds.

The saga has cost the ASX hundreds of millions of dollars in writedowns and the departure of its chief executive and chief financial officer.

The ASIC investigation is examining from October 28, 2020 when an announcement was made by the ASX that the CHESS replacement system would “go live” in April 2023, marking a 12-month extension.

At the time, then ASX boss ­Dominic Stevens pledged the overhaul of the CHESS system – which manages and settles share trades – would meet the expectations of the regulatory agencies that CHESS be replaced as soon as it could be achieved safely and that the new system met the market’s needs.

In November 2020 the ASX experienced an embarrassing and expensive market outage following a major upgrade to its equity trading platform, leading to ASIC and the Reserve Bank implementing an independent expert review.

But the overhaul of the CHESS system has dragged on and, in May last year, the ASX conceded that the April 2023 “go-live” target was no longer viable.

ASX chief executive Helen Lofthouse.

This later resulted in the departure of Mr Stevens and the CFO, while newly appointed chief executive Helen Lofthouse admitted in November that the botched CHESS overhaul would trigger impairments of up to $255m.

Last month, stockbrokers, share registries and other stakeholders around the ASX told a federal government committee they had spent as much as $250m preparing for the stalled blockchain-based replacement program.

ASIC chair Joe Longo told the same inquiry – the Parliamentary Joint Committee on Corporations and Financial Services – the stock exchange had a “long way to go to restore trust and confidence” in its capacity to handle the CHESS program update.

He told the committee he felt a “lot has gone astray” and it would take several years before the replacement for the system, originally mooted in 2016, was actually implemented.

“We know what is going to replace it is years away,” he said. Mr Longo said that there had been changes in the top level at the ASX, including at chief executive and board level, but it was too early to tell if the organisation was taking “real action” to address its problems and could restore trust.

On Wednesday the ASX issued a statement to the market stating that ASIC had confirmed that it had commenced an investigation into whether a number of ASX entities – ASX Limited, ASX Clear and ASX Settlement – as well as their directors and officers, had breached obligations under a string of sections of the Corporations Act and ASIC Act.

The investigation covers ASX statements to the market and investors during the period October 28, 2020 to March 28, 2022, in relation to oversight of the program, and statements made by or on behalf of ASX as to the status of the program.

“ASX takes its obligations very seriously and will co-operate fully with ASIC,” the equities market operator said in its statement.

It is unclear whether the ASIC investigation will drag in former directors and staff of the ASX, including Mr Stevens who oversaw work on the CHESS overhaul.

An ASIC spokesman confirmed it had begun an investigation.

“In accordance with policy on public comment in relation to current investigations, ASIC will not comment further on the investigation at this time,” the spokesman said.

Super fund UniSuper, which is the ASX’s largest shareholder with a 13.17 per cent stake, declined to comment on the ASIC investigation. AustralianSuper is also a major shareholder in ASX and declined to comment.