Chi-X concerned ASX blockchain system presents unfair advantage

The Australian Securities Exchange (ASX) believes it can better protect investors by switching to a blockchain-based solution. It is planning on making the transition and has already started to put the process in motion, but a competing exchange is crying foul. The Chi-X Australia exchange, which manages about 20% of the total trade volume in the country, asserts that the ASX will have an unfair advantage by using blockchain technology.

The ASX is the largest exchange in Australia and is currently preparing to move its registry, settlement and clearing systems to a blockchain solution that will be more affordable for traders. It is currently testing the alternative, but Chi-X has lodged a complaint with the Australian Competition and Consumer Commission (ACCC) to determine whether or not it should be allowed to make the switch, according to a report by Reuters.

Chi-X General Counsel Michael Somes states, “There’s a substantial moat around the ASX clearing and settlement business…and the CHESS [Clearing House Electronic Subregister System] replacement project is perhaps making it bigger. It would be very difficult for the competition to bridge that moat—I’m not saying it won’t happen… but it needs to be regulated as if it won’t.”

The ASX acts as a clearing service for Chi-X, a company owned by J.C. Flowers out of New York. Chi-X is concerned that the ASX will be able to receive better benefits in areas where the two compete and Somes adds, “There should be a legislative framework whereby the [ACCC] can act as an arbitrator on disputes. That should happen as soon as possible.”

When the transition is complete, the ASX will become the largest mainstream financial market to use blockchain technology. The new platform will take the palace of CHESS using distributed ledger technology and is expected to have everything in place by the spring of 2021.

The answer seems to be simple and the situation is no different than what is constantly found in any industry—the entity that can offer a better, more affordable solution wins. If Chi-X wants to stay competitive, it needs to adopt blockchain, as well.

The ASX isn’t too concerned about the complaint, stating that it is an issue that the government will have to address. A spokesperson for the company states, “We are continuing to engage closely with government and regulators, including the ACCC, throughout our CHESS replacement programme. We are focused on building a platform for the future that will stimulate further innovation and competition.”

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