ASIC launches inquiry of ASX’s ‘repeated and serious’ failures

The ASX has vowed to cooperate with ASIC after the corporate watchdog launched an inquiry into the market operator’s regulatory and risk management failures.

ASIC led by Joe Longo is not happy with the pace of modernisation at the ASX helmed by Helen Lofthouse.

The ASX has vowed to cooperate with ASIC after the corporate watchdog launched an inquiry into the market operator’s regulatory and risk management failures that included a major meltdown of its computer systems last year.

The ASX is under fire for problems with its aging clearing and settlement platform, known as CHESS, which suffered a failure last December that resulted in major market disruptions in the lead up to Christmas. The corporate regulator sued the ASX last year, alleging it had made misleading statements related to its CHESS replacement project in 2022.

There is growing concern within the investment community about the bourse’s failure to keep pace with business and technological changes, highlighted by the declining number of companies listing on the ASX.

ASX chief executive Helen Lofthouse told an investor briefing on Monday that the bourse had established a taskforce to work in a “collaborative way” with ASIC in the inquiry.

“As the operator of critical market infrastructure we recognise the significance of this action by ASIC and we are committed to supporting the inquiry,” Ms Lofthouse said.

“This is a wide-ranging inquiry and it will provide an independent and transparent view of the work we have done, and the work we still have to do. It will be critical to ensuring our stakeholders can have trust and confidence in ASX.”

Ms Lofthouse conceded regulators were clearly not satisfied with the pace of change at the bourse and there was a need to bolster market confidence.

The ASX has not ruled out further delays and cost blowouts in its long-awaited upgrade to CHESS, which handles the transfer of money and shares between buyers and sellers.

ASX last year said it was “continuing to work” towards a 2026 delivery of the first stage of the upgrade with estimated project costs now expected to be between $105m to $125m. The second stage to be delivered in 2029 will cost between $270m and $320m.

ASX shares fell 6.7 per cent to $67.9.

ASX chief executive Helen Lofthouse

Both ASIC and the Reserve Bank of Australia have raised fears of the wider economic impact of the ASX’s outdated technology following the CHESS incident on December 20, which resulted from a breakdown in the system’s memory allocation.

That meant it was not able to complete batch settlement for the cash equities market on that day. Batch settlement was cancelled and rescheduled to the next business day.

ASIC said it had launched the inquiry after “repeated and serious failures at the bourse.” ASIC chair Joe Longo said the ASX played a critical role in Australia’s financial markets and both the regulator and the RBA had ongoing concerns over its ability to maintain stable, secure and resilient critical market infrastructure.

“Investors and market participants deserve to have absolute confidence that ASX is operating soundly, securely and effectively,” he said Mr Longo.

“ASX is ubiquitous, you simply cannot buy and settle on the Australian public equities and futures markets without relying on ASX and its systems.

“ASIC’s inquiry will be led by an expert panel that will make recommendations to address any identified shortcomings or deficiencies. ASIC will publish a report of the outcome of the inquiry, which will inform the next steps it may take.”

Mr Longo foreshadowed the inquiry would be similar to the Australian Prudential Regulation Authority’s broad range probe into Commonwealth Bank in 2018 that uncovered serious regulatory and cultural failings.

“We’re working very closely with the Reserve Bank and other regulators, we try to listen to market participants and we think the pace of change just hasn’t been fast enough,” Mr Longo said.

“In fairness, the ASX had launched a number of technology investments, the most obvious one being the CHESS replacement.

“From the investigation arising out of the outage last December we’ve learned enough to feel the most effective thing to do now is to have a broad ranging holistic inquiry rather than have a traditional investigation of a particular incident.”

The Exchange Centre in Sydney.

Ms Lofthouse said technology modernisation was “an absolutely fundamental part of our strategy”.

“It is also very important to our regulators as well and they’ve made that clear in today’s announcement,” she said.

“They talked about it being critical that we continue to prioritise both the safe and efficient operation of our infrastructure, but also progress towards the release of one of the technology modernisation road map.”

Mr Longo declined to be drawn on whether there was a need for the establishment of an effective competitor to the ASX to increase its efficiency, but the inquiry could lead to recommendation for reforms.

“As things stand in Australia, we have a monopoly operator that’s self-listed but that represents a series of historical policy decisions and it’ll be interesting to see whether the outcome of this panel inquiry could lead to some structural reforms,” he said.

Originally published as ASIC launches inquiry of ASX’s ‘repeated and serious’ failures