ASX to scrap blockchain tech plan for its botched CHESS overhaul

Project director Tim Whiteley says the ASX would likely revert to ‘conventional’ technology to replace its CHESS clearing system.

The ASX is likely to abandon blockchain technology as a replacement for its CHESS clearing and settlement system. Picture: David Swift

The ASX is likely to completely dump blockchain as the core technology behind the replacement program for its CHESS clearing and settlement system, as it considers “more conventional” options to redesign and deliver the botched project.

Tim Whiteley, the former Westpac technology manager who the ASX named as project director in November, said that it was increasingly likely that the exchange would have to dump plans to use blockchain or distributed ledger technology (DLT) for the program.

The ASX suspended its planned blockchain-based replacement program last November and booked a $250m writedown in already capitalised costs as it rethought the project.

Mr Whiteley told brokers and other clearing participants left stranded by the program halt that the four options under consideration included attempting to fix problems identified by an Accenture review into the blockchain-driven project, which led to its suspension.

But the other, more realistic, options under consideration were buying a new solution from a local or international software company, improving the 25-year old “legacy” CHESS system by updating its “existing stack”, or rebuilding the system from the ground up.

Asked whether the project would use other tools and not blockchain technology, originally mooted back in 2016, Mr Whitely said it was likely the exchange would have to go the conventional route.

“While we continue to explore all the options, certainly … we will need to use a more conventional technology than in the original solution in order to achieve the business outcomes,” he told stakeholders at a webinar on Wednesday.

The ASX had sent requests for proposals to vendors and was assessing responses. The exchange expects to announce the solution in the last quarter of the year, but warned that vendor processes could delay the announcement until 2024.

“We’ve done a market scan and a (request for information) process across product vendors to look at all the options available to us, both locally and internationally,” Mr Whiteley said.

The ASX created a partnership program for its stakeholders to work with them on the replacement program, including $20m in fee rebates and $55m of incentives if certain project milestones were met.

In the webinar, ASX securities and payments executive Tim Hogben said the exchange had approached 77 organisations via email and would expand the number of parties who will be eligible for the program.

Stockbrokers around Australia are estimated to have spent as much as $100m working with the ASX on the long-running replacement program, which included several testing operations over weekends last year.

The Australian Securities and Investments Commission is investigating the ASX, its directors and management for “suspected contraventions” of laws in relation to communications about the failed CHESS transformation.

The regulator is examining announcements made from October 28, 2020 stating the long-touted blockchain-based CHESS replacement system would “go live” in April 2023 – which at the time meant a 12-month extension.

At the time, then ASX boss ­Dominic Stevens pledged the overhaul of the system 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.

It was not until May last year that the ASX conceded that the April 2023 “go-live” target was no longer viable, leading to the departure of Mr Stevens and the then chief financial officer, Gillian Larkins.

That followed newly appointed chief Helen Lofthouse’s announcement in November that the botched CHESS overhaul would be suspended and completely redesigned.

The Accenture review found six core problems with the project and said there were significant gaps in its test, analysis and design, and overall program and project management.

“The program lacks a holistic, agreed, single view of status with adequate traceability of resources and estimation to the draft delivery plan,” it said.

“The current design is contributing to challenges in achieving scalability, resiliency, and supportability.”