Market operator ASX says that design of CHESS replacement project to be revealed this year

The market operator escaped a second strike as the board reveals to shareholders how it will rebuild following ‘reputational damage’ caused by the bungling of its CHESS replacement project.

ASX Limited narrowly avoided a second strike on its remuneration report at its annual meeting as the market operator detailed how it will restore trust following a series of delays in its long-awaited and costly CHESS replacement project.

The adoption of the remuneration report was rejected by 21 per cent of investors as many mum and dad shareholders sided with a number of proxies not satisfied with recent performance of the company.

A second strike is only achieved if more than 25 per cent reject the report, which would spill all positions on the group’s board.

ASX chairman Damian Roche told shareholders at its annual meeting in Sydney that the group had taken action in executive pay by halving the reward pool available to the team and further reductions for executives directly involved in the bungled CHESS replacement.

“Deferred rewards from fiscal year 2022 and prior for executives and leaders responsible for the project were reduced or cancelled, as was outstanding equity for the former CEO and former deputy CEO,” he said.

“There is more to do, but we are clear about the path ahead and what it will take to ensure we build on the foundations of what is an enduring and attractive business.”

Mr Roche, who was re-elected chairman for a final term, admitted that confidence in the group had been tested and “we acknowledge we must now demonstrate that the changes we are undertaking will help restore that confidence”.

“It was ASX’s decision to commence a review into the escalating delays for the project and that act itself should serve as a reminder that your Board and management team are willing to address difficult situations,” Mr Roche said.

ASX said it was on track towards announcing the solution design for its much delayed and costly CHESS replacement project by the end of December.

While the board remained tight lipped to investors about the CHESS replacement, ASX chief executive Helen Lofthouse said that the operator was “well progressed” with the design, having held industry consultation on the project and implementing all findings from Accenture on past failures.

Extensive delays from scaling challenges and resilience requirements, prompted ASIC to launch investigation into ASX’s directors/officers in relation to the oversight of the CHESS Replacement Program and statements and disclosures on the status of the program.

Shareholders heard that ASX had “clear objectives” on what it was trying to achieve with the new CHESS system with it looking to build a solution that is reliable, supportable and meets licence obligations and the current needs of the market.

“We must have a robust and achievable implementation plan that gives stakeholders confidence in a safe and reliable industry transition to the new platform,” Ms Lofthouse said.

She added that the replacement is seeking to consider the impact of a new system to industry stakeholders, and it also wanted to create opportunities for industry efficiencies and growth including support for new asset classes and capabilities such as tokenisation.

“ASX is considering solution options which would take a more modular approach, with separate components for clearing, settlement and sub-register services to support flexibility and interoperability,” she said.

The group said that the level of expense growth seen amid the CHESS redesign was not “sustainable” and it would reduce total expense growth rate through a series of measures including workforce optimisation, process simplification and automation, and strategic procurement.

Investors also probed the board about how it would lift the share price, which was down nearly 20 per cent since January 1. Mr Roche said he shared shareholders’ disappointment and that ASX’s five-year strategy revealed in June would propel the company forward.

“Our focus is on ensuring that we are protecting the wonderful franchise and business that you are shareholders of,” he said. “We are being very transparent about those issues, making the necessary decisions and making those investments, and focused on building long-term sustainable value for shareholders.”

ASX said that there had been an improvement in capital raisings in September and an increase in new listing activity with companies such as Redox and Freightways listing in the last few months.

Initial capital raised had grown 503 per cent to $4.8bn in the September quarter compared to $789m a year prior, while secondary capital had increased 19 per cent in the past month.

Despite optimism, the operator added that the first quarter had seen the continuation of the trends record in the June quarter, primarily driven by cyclical factors.

ASX reiterated its guidance of total expense growth to be between 12 per cent and 15 per cent this fiscal year with capital expenditure for fiscal year 2024 will be between $110 and $140m.

Originally published as Market operator ASX says that design of CHESS replacement project to be revealed this year