ASX faces growing regulatory bill over CHESS problems amid mixed earnings
The market operator is hoping continued volatility drives revenues in the coming year amid mixed interim earnings results.
Market operator Australian Securities Exchange has assured investors its technology transformation remains on track, amid looming regulatory action and an ongoing court fight tied to its ageing infrastructure.
Ruling off its first-half results on Thursday, the ASX booked a 5.6 per cent rise in statutory profit to $243.5m, falling short of analyst expectations. Analyst consensus estimates had dialled in expectation as ASX would deliver a $245.9m statutory profit.
On an underlying basis, ASX profits came in ahead of consensus estimates, with the ASX pointing to growth from its markets, technology & data, and securities & payments divisions.
This all saw ASX operating revenue lift 5.9 per cent to $541.9m as the Trump effect and global turmoil drove a surge in trading activity and fees.
But ASX’s looming move to a new stomping ground in Sydney’s Martin Place, away from the exchange’s historical home on Bridge Street, also saw the market operator book a $10m charge in the period.
ASX chief executive Helen Lofthouse said chaos was good for the ASX, noting the world had entered an era where a single tweet could send the market swinging.
“It’s not unusual to look at the news in the morning and see there’s been yet more news overnight which has been impact,” she said.
“That’s what markets are for in uncertain times.”
ASX told investors the market operator was seeing an increase in listings and new capital quoted in the first half of 2025, which was expected to continue with the $32bn listing of Chemist Warehouse and Sigma Healthcare, due to trade from Thursday, a sign of the times.
ASX also noted the market’s 8 per cent lift in cash value was driving increased trading and speculation, which would drive revenues for the markets business.
Futures and options volumes are also up 19 per cent over the seven months to January, with ASX noting the current market was supporting further speculative trading.
Shares in ASX Ltd were boosted by the positive outlook, closing up 5 per cent at $66.62.
Ms Lofthouse, who took on the running of the ASX in August 2022, said the market operator was now two years through a five-year technology transformation place to replace its ageing CHESS platform.
The 30-year-old technology is central to the ASX’s clearing, settlement, and depositories, but is now showing its age.
The ASX warned late last year CHESS’ replacement TCS BaNCS platform was now likely to cost as much as $445m to implement.
This comes after ASX spent $250m on an earlier attempt to replace CHESS with a blockchain technology.
ASX revealed it spent $82.5m on capital expenditure in the half, falling short of analyst expectations, amid UBS expectations of an $88m budget.
But the exchange reconfirmed its guidance it was likely to spend $160-180m on capital expenditure between 2025 and 2027 before reducing.
Ms Lofthouse said CHESS had to be replaced, but noted the system had “served the market extremely well and remains World Class”.
But the ASX has been troubled by CHESS, which went dark late last year amid a technical hitch in settling trades around a low-point in the market before Christmas.
Ms Lofthouse said the CHESS incident near the Christmas period “does not impact our overall strategy, including our technology modernisation program”.
But the Australian Securities and Investments Commission is now considering a second probe into the ASX, after already taking action over the market operator’s last troubled attempt to replace CHESS.
ASIC is suing ASX over its disclosures to investors over its failed CHESS project.
ASX’s former chair Damian Roche resigned in the wake of ASIC’s action, but Ms Lofthouse said she was staying put at the market operator.
“I’ve been hired as CEO of ASX to deliver on a really important strategy for this organisation, taking us into a new era for ASX,” she said.
Ms Lofthouse said ASX’s regulatory expenses were not mounting, with the ASX reporting its spend was just $2.9m in the last half.
This was compared to $7.3m spent on regulatory matters in the first half of 2024 and more than $13.3m in the second half of 2023.
Ms Lofthouse said it was too early to speculate what actions ASIC may take over the last outage.
But she noted the ASX had seen similar incidents like this before.
UBS analyst Kieren Chidgey previously warned the ASX offered “little value appeal” amid “ongoing execution and regulatory risks surrounding its CHESS replacement”.
On Thursday Mr Chidgey said ASX was now facing a “multi-year catch up” on capital expenditure, warning this would constrain earnings.
ASX declared a $1.11 dividend, up 9.9 per cent and ahead of estimates.
This sees ASX pay out 85 per cent of its earnings, fully franked.
ASX shares have slumped more than 28.3 per cent since July 2022.
Despite this Barrenjoey analyst Andrew Adams said ASX was still trading 14 per cent above the top of its historical premium range.
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Originally published as ASX faces growing regulatory bill over CHESS problems amid mixed earnings
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