ASX de-risks final CHESS move

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ASX also invested in its market surveillance technology, upgraded its market announcement platform, and in the next few weeks will upgrade its equity trading system.

Stevens on Wednesday laid out the new timeline for the CHESS replacement and the ASX’s response to its latest round of consultation with market participants and users of ASX services.

The consultation revealed CHESS users wanted clarity on the pricing of settlement and clearing services, information on data governance arrangements, the steps being taken to avoid the system crashing on debut, and the ASX’s plans for CHESS migration dress rehearsals.

The major investment banks, which dominate share trading, were happy to proceed with the original April 2021 start date for the CHESS replacement, but other users said they needed more time.

Stevens says the new timeline ensures that customers will be able to test their systems and how they interact with the new distributed ledger technology.

It says a lot about the difficulties in digitising mission-critical capital markets infrastructure. It is now five years since ASX first started evaluating the replacement of CHESS and three years since it chose Digital Asset as its technology partner.

The new system involves a combination of Digital Asset, which is is focused on delivering the application layer, and VMWare which is designing the ledger component of the new system.

Earlier this year, ASX made a commitment to the two regulators of clearing and settlement – the Reserve Bank of Australia and the Australian Securities and Investments Commission – to include a range of “non-functional”
business requirements that address operational risk management requirements.

It said it would ensure the CHESS replacement is available for 99.95 per cent of the time during operating hours, the new system will be recoverable (without data loss) within two hours where there has been a serious failure, and the system will have a minimum of 100 per cent capacity above the peak daily volume in CHESS.

The RBA said in its annual assessment of the ASX clearing and settlement facilities published in October that a timely delivery of the CHESS replacement was essential for market stability.

“While it is critical that the new system be delivered in a safe and reliable manner, on a timeline that ASX and the users of CHESS can meet, any
unnecessary delay to delivery carries risks to the continued stability of the current system,” the RBA said.

On Wednesday, previous vehement critics of the ASX’s approach to the CHESS replacement appeared to be happy with the delayed timetable.

Ian Matheson, chief executive of the Australasian Investor Relations Association, says the ASX has taken on board industry feedback and responded positively.

He says the comments made earlier this month by the RBA were quite significant because they provided the ASX with a reminder of its obligations in relation to market stability.

Matheson welcomes the “buttressing” of the ASX’s capacity to handle increased trading volumes and the additional features being added from April 2023. Also, the ASX was wise to de-risk the CHESS replacement system.

A spokesman for the CHESS Replacement Stakeholder Group said it had been disappointed with the ASX’s previous consultation processes but was glad to see its demand for a delay had been agreed to.

“We have mixed emotions about this because on the one hand we need more time but on the other hand the CHESS replacement needs to happen as soon as possible,” the spokesman said.

The stakeholder group represents Computershare, Link Administration, Boardroom, the Governance Institute, Australasian Investor Relations Association, the Australian Shareholders Association and the Australian Stockbrokers Association.

Stevens says his primary objective with the changes to the ASX technology stack is to digitise all the operations of the exchange and remove as many manual processes as possible.

We’re just providing the rails that actually lets people make their business a whole lot more efficient,” he says.

“I think it takes us into a world where so much more can be done by vendors, by companies and by fintechs by actually having access to real-time electronic information so you can go forward and multiply.

We’ve got to be moving to the next generation of technology now.”

Stevens says he would eventually like to move ASX’s technology systems into the cloud.



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