Banking Investment News

ASX settlement system triggers first blockchain competition complaint

asx
Highlights

  • ASX is replacing its clearing and settlement system with a blockchain solution
  • Share registry companies have made a competition complaint
  • UK blockchain company SETL plans to enter the Australian market
  • Share registry Computershare owns more than 10% of SETL

The Australian Securities Exchange (ASX) is planning to launch a blockchain-based clearing and settlement system (CHESS) in March 2021. We previously wrote that there had been a backlash, partly related to concerns over costs. But particularly by share registry companies who believe that the new CHESS system encroaches on their turf. A formal competition complaint has been lodged. And UK blockchain technology firm SETL, part-owned by one of the share registries, is also keen to launch in Australia and is being advised by a former competition commission chair.

Last week the Australian Financial Review (AFR) reported that the Chairman of the Australian Competition and Consumer Commission (ACCC) Rod Sims confirmed that the ACCC had received a competition complaint about the new DLT CHESS system and that the ACCC is playing an “advocacy role” to make certain competition issues are dealt with.

An ACCC spokesperson told Ledger Insights that they could not comment on complaints or potential investigations.

Blockchain competition complaints

This is perhaps the first competition complaint which is directly related to blockchain. And likely the first of many. There is also a current UK investigation indirectly related to blockchain. The UK one relates to the acquisition of Earthport by VISA. Earthport is also a Ripple and Transferwise partner and provides cross border remittance services by having relationships with foreign banks in 87 countries.

In the ASX case, the issue is that a single entity is perceived to be extending its reach and taking over some of the functions currently provided by the share registries. Disintermediation is one of the objectives of blockchain, so this is likely to be a recurrent theme.

In the future, there’s also likely to be cases where parties that don’t participate in a consortium feel locked out of the market or concerns about a lack of pricing competition. Anyone involved in discussions around blockchain consortia will be familiar with warnings not to discuss pricing and the like.

The disgruntled ASX group, Computershare, Link Administration and Boardroom, commissioned a report from Deloitte which was critical of ASX’s approach. That followed their unhappy responses to the ASX consultation, which ASX published on its website.

The SETL angle

Digital Asset was the company chosen by ASX to implement CHESS. Deloitte was criticized as having a conflict of interest because it has a stake in an alternative technology provider, UK-based SETL. But that shareholding is very small (1%), and SETL is currently in administration (UK insolvency procedure).

However, one of the share registry companies Computershare is the largest external investor with an interest in SETL of more than 10% and has made joint presentations in the past. The Australian Financial Review (AFR) additionally commented that SETL has plans to enter the Australian market once it emerges from administration. That will only happen if a white knight is found, whether that’s a new investor or an existing one.

And the AFR reported that a former ACCC chairman Graeme Samuel is advising SETL. The consultancy scope relates to competition and market entry issues.

ASX statement

To try to address concerns and issues raised in the Deloitte report, last week ASX’s deputy CEO Peter Hiom held a session with the “Working Group”. After the meeting, the ASX issued the statement below.

“ASX had a positive and constructive meeting with representatives from the Working Group. We clarified a number of fundamental misunderstandings – including that we will not mandate the provision of any extra users’ data nor will we be increasing fees to pay for the CHESS replacement project.”

“ASX also committed to invite members of the Working Group, including representatives from the share registries, to join the Business Committee, which is the primary stakeholder governance body for ASX’s clearing and settlement services.”

“ASX is on track to deliver its ‘first drop’ of the distributed ledger technology into a customer development environment by the end of the month. No software has been released to customers to date. This will be the world’s first drop of DLT by a major exchange. There will be seven technology drops over the course of the project. Their contents reflect what the market has asked for through ASX’s extensive public consultation process.”

“ASX is aware of its regulatory obligations and continues to engage frequently with all of its regulators, including ASIC, RBA and ACCC.”

“We also continue to work closely with our customers and look for ways to better respond to their needs.”


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