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The Australian Securities and Investments Commission (ASIC) has sued the Australian Securities Exchange (ASX), the country’s leading stock exchange, over allegations it made “misleading and deceptive” statements about a now-abandoned project to replace its outdated systems with blockchain technology.
“ASIC has commenced proceedings in the Federal Court against Australia‘s largest market operator, ASX Limited, for allegedly making misleading statements related to its Clearing House Electronic Subregister System (CHESS) replacement project,” the regulator said in a media release.
Specifically, Australia’s top financial sector watchdog alleged that in a February 10, 2022, announcement, ASX falsely stated that the blockchain-based replacement for CHESS—the computer system that manages the settlement of share transactions and record shareholdings—was “on track for go-live” in April 2023 and was “progressing well.”
The regulator claimed the project was “not tracking to plan” at the time the statements were made, and that in reality the exchange “did not have any reasonable basis to imply the project was on track to meet future milestones.”
According to ASIC Chair Joe Longo: “The true state of affairs as at 10 February 2022 was that the project was not “progressing well,” contrary to ASX’s announcement. The delay and subsequent pause of the project in November 2022 caused significant cost to ASX and market participants who relied on assurances as to the progress of the project and scheduled go-live date.”
He added that “ASX’s statements go to the heart of trust in the integrity of our markets. We believe this was a collective failure by the ASX Board and senior executives at the time.”
In its response statement, ASX Managing Director and CEO Helen Lofthouse acknowledged “the significance and serious nature of these proceedings,” adding that “we cooperated fully with ASIC’s investigation and are now carefully reviewing and considering the allegations.”
ASIC has yet to specify the penalty it will seek.
Background to the suit
In 2016, ASX decided to replace CHESS, which has been in use since the mid-1990s. It eventually settled on using a system based on distributed ledger technology (DLT)—a system whereby digital records, such as transactions, are securely stored and shared across multiple computers.
In November 2022—after five years of work, numerous delays, and spiraling costs of up to US$170 million (A$255 million)—ASX announced it had “paused” activity on the project after an independent review into the delivery of the CHESS replacement found “significant challenges with the solution design and its ability to meet ASX’s requirements.”
Shortly after, the exchange abandoned the project, citing dysfunctional management, concerns about the product’s complexity and scalability, and difficulty finding experts to support it.
In her response to the lawsuit, ASX Chief Lofthouse was resolute that her team was “committed to taking ASX forward, and have made strong progress as an organisation over the past two years.”
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