Shareholder groups, investors round on ASX, chair Damian Roche comes under pressure

ASX chair Damian Roche is under renewed pressure to give a timeline for his exit in the wake of the corporate regulator’s legal action.

The corporate regulator is suing ASX over it’s botched CHESS replacement project. Picture: NewsWire /Gaye Gerard

Shareholder groups and investors have rounded on ASX following allegations it misled the market on its botched CHESS replacement project, with long-serving chairman Damian Roche under renewed pressure to give a timeline for his exit in the wake of the latest controversy.

Australian Shareholders Association chief executive Rachel Waterhouse on Wednesday said she expected “an announcement on the timing of a change in the chair ASAP”, as she called for a review of the exchange’s governance processes.

“The CHESS replacement project has been a shambles for many years. The ASIC legal action is around the importance of transparency and accuracy, and there needs to be consequences where market regulation may be breached,” she said.

“If these allegations are proven true, that will highlight a full breakdown in trust, which will be very hard to restore.”

The corporate regulator on Wednesday said it was suing ASX over “misleading and deceptive” statements the exchange made to investors in February 2022 on how the CHESS replacement project was tracking.

The statements related to the ASX’s bungled Clearing House Electronic Subregister System replacement project, which had sweeping ramifications for the company, including hundreds of millions of dollars in writedowns.

The project — which was to upgrade key technology underpinning share trading and settlement — was eventually shelved by the ASX in late 2022. A new, less ambitious project is now underway and expected to complete by 2029.

ASX chair Damian Roche and chief executive Helen Lofthouse.

Mr Roche, who has been on the board since 2014 and in the chairman role since 2021, received a protest vote at last year’s annual meeting, with 6 per cent of shareholders voting against his re-election.

At the time, he committed to retire within the next three years but the ASA urged for him to go within 12 months.

“Mr Roche has indicated he will step down once a new chair is found and an orderly transfer has occurred, but there has been no commitment on timing. These processes can take quite some time, particularly for a company with ASX’s challenges. It is disappointing that with all the board renewal that has taken place, there is no succession plan,” Ms Waterhouse said.

“The lack of information to shareholders is reminiscent of the way the CHESS project was managed in the public domain over the last several years, before ultimately failing and resulting in a massive impairment and restart. Shareholders are entitled to feel edgy and untrusting given the circumstances.”

Vas Kolesnikoff of proxy adviser Institutional Shareholder Services said the lack of transparency on the CHESS replacement project was a big issue.

“The issue is the transparency of the board in overseeing management in explaining the progress and that it’s on track. It is a big, important project,” Mr Kolesnikoff said.

“The governance issue around transparency is, why are you not being transparent? It’s often not for good reasons, it’s usually because there is something else there.”

Tribeca Investment Partners portfolio manager Jun Bei Liu warned the legal action would weigh on the share price, adding to ASX’s challenges. She expects ASIC to be successful in its case against the exchange.

“I think it will be a drawn out case and given (CHESS replacement) has been a problem for so long, it will be a hard one for ASX to win, so it will impact (investor) sentiment,” Ms Liu said.

“The share price fell quite significantly in early June when (ASX flagged) weaker earnings and the like. Since then (before today) it has rallied but not really on fundamentals, it rallied because other exchanges globally were rallying. ASIC suing really now puts its problems in the spotlight,” she added.

Another stockbroker, who asked not to be named, labelled ASIC’s legal action a “circus”.

“My initial thought was what an absolute circus. Not only is the market regulator taking on the market operator (who holds a monopoly over the industry) but it’s taken 15 months of taxpayer-funded investigating to uncover what was hidden in plain sight. Its typical bureaucracy at its finest,” he said.