ASX settlements likely on Monday after technology system failure

Brokers were scrambling to ­secure funding to cover millions of trades that failed to settle on Friday, after the ASX revealed a meltdown of its key technology platform.

Settlements for trades on the ASX made since Wednesday will now occur next week.

Brokers were scrambling to ­secure billions of dollars in funding to cover millions of trades that failed to settle on Friday, after the Australian Securities Exchange revealed a major outage of its key technology platform CHESS.

The outage, which will delay settlement of equity trades until Monday next week, triggered co-regulators the Reserve Bank and Australian Securities & Investments Commission into action to actively monitor the crisis into Friday night.

The ASX warned traders late on Friday it would be forced to delay settlement for trades made on Wednesday until at least Monday next week after it failed to resolve issues with the CHESS batch settlement system.

The ASX confirmed it had been unable to resolve the technical issues that were affecting settlement on CHESS, the ageing system operating out of the Australian Liquidity Centre in the Sydney suburb of Artamon.

The ASX said its teams were working urgently to resolve the issue, and that trades from Wednesday and any bilateral settlements scheduled for settlement on Friday were affected.

The bourse regular operating system settles equity trades on a two-day delay after execution, also known as a “T+2” arrangement.

The market operator also said its end of day would not commence at 7pm, and a revised end of day would be confirmed “with sufficient time for customers to manage the impact”.

This move leaves traders significantly exposed over the weekend, with many unable to close trades made on Wednesday.

ASX data shows more than 1.7 million equity trades were made on Wednesday.

A well-placed broker told The Weekend Australian his firm had paid all clients, despite not being paid by the ASX, with the firm forced to find short-term funding on Friday.

He said the outage could leave brokers short more than $3bn for trades yet to settle.

The technical problem came while the ASX was flat on Wednesday with the benchmark S&P/ASX 200 slipping 0.06 per cent.

The ASX first issued a warning to traders mid Friday that its ageing CHESS system – built on an archaic COBAL coding language – was experiencing issues.

The market operator said at noon that it was investigating ­issues with its batch settlement capabilities before revealing at 1.34pm partial operational problems.

Despite almost five hours of trying to resolve the issue, including extending settlement closing until late on Friday, the ASX was unable to fix its CHESS system.

However, trades received on Friday continued to be processed in the usual manner.

ASX chief executive Helen Lofthouse. Picture: Max Mason-Hubers

The ASX said it had informed regulators about the CHESS ­issues, and that it had also been speaking with customers, market participants, registries and payment providers “all through Friday and has apologised for any impact the delay may cause”.

The RBA said it and ASIC were actively monitoring the CHESS outage through the day. The two co-regulate the ASX.

“The RBA has been receiving regular status updates on the incident and has been discussing the incident management options with ASX,” an RBA spokes­woman told The Weekend Australian.

An ASIC spokesman said the regulator was monitoring the ASX as it worked to resolve the CHESS delays.

“ASX continues to provide regular system status updates on its website and is engaging with market participants,” the spokes­man said.

The ASX was set to meet with market participants at 6.30pm AEDT on Friday to discuss the issue. A broker said if the ASX was not able to resolve the CHESS issue, it may be forced to cancel trading on Monday.

“They couldn’t go into a second day of not settling the ­market,” he said.

The CHESS meltdown comes as the ASX seeks to replace the system first introduced in 1994. An earlier ­attempt at a replacement collapsed due to ­issues with a blockchain tech­nology.

ASIC is now suing ASX over its earlier CHESS replacement scheme, saying the ASX knew it was going wrong but failed to inform investors before writing off $250m spent on the platform. This could result in ASX being penalised as much as $555m.

ASX late last month said it ­expected its CHESS Release 2 implementation to be delivered in 2029 and estimated that it would cost between $270m and $320m.

In a conference call for investors and analysts at the time, ASX chief executive Helen Lofthouse said the revision in the cost guidance to the upper end of the previously communicated range was linked to cloud and data platforms.

“Since I became chief executive, the CHESS project and its successful delivery has been a very high priority focus,” Ms Lofthouse said.

“Everyone is well aware of how the delays in the previous project caused disruption and that’s something for which we have apologised, but I think the market is also aware that we’ve been working hard to progress the current CHESS project differently to minimise delays and risk while prioritising engagement and safe delivery.”

The latest CHESS outage follows a string of similar incidents that have struck the market ­operator.

The ASX experienced a major outage on November 16, 2020, after a weekend software update of the ASX Trade.

CHESS also collapsed in March 2020, when trading volumes spiked to almost $18.1bn, three times the normal daily averages on the exchange.

The outage, also on a Friday, forced the market operator to manually process trades over the weekend.

The ASX also capped trade volumes in the wake of the outage.

However, the latest outage comes amid subdued trading volumes on the exchange.

In the wake of the technology outages to hit the ASX the RBA and ASIC’s powers were strengthened, allowing the regulators to intervene in the market operator’s systems.

Additional reporting: David Rogers