Capital markets News

ASX confirms likely delay to CHESS blockchain settlement solution


Today the Australian stock market ASX confirmed there will likely be a delay in the go-live of its blockchain-based post-trade solution CHESS, which is currently scheduled for April 2023. Assuming it is delayed, it will be at least the third delay in the project that commenced in 2016.

As a replacement of the current CHESS system, the new version uses blockchain and smart contracts for clearing and settlement, enabling greater automation and efficiency in post trade processes. The CHESS solution is based on Digital Assets’ smart contract language DAML and VMWare’s enterprise blockchain.

The next iteration of code from its technology partner, Digital Asset, was scheduled to be deployed in April and has been pushed back to July. This release incorporates “non-functional tuning” and code fixes identified by customers. ASX will share additional timeline details in April. 

These software changes follow the November 2021 launch of the first iteration of the CHESS Industry Test Environment (ITE1). While service providers and stock market developers previously had access before this date, it was for limited functionality and low volumes.

Also in November, Australian Securities & Investments Commission, ASIC insisted that there be an independent review over the progress of CHESS and whether it is fit for purposes. That followed an IBM report that found an outage of the existing ASX operational system in 2020 resulted from a software upgrade that was not ready to go live.

EY’s review of CHESS

EY is responsible for ASIC’s regulatory review of CHESS and published its initial report in late February. Overall it found that the blockchain CHESS replacement is fit for purpose but highlighted some reservations, particularly regarding testing. These are mainly related to the timing of tests and the level of details in requirements. 

With regard to milestones and timing, EY noted that for the first test environment (ITE1), because there was a delay being ready to deploy, the ASX internal auditor’s review was more limited than intended before launch. For the next iteration (ITE2), the plan was to conduct the review post launch. While this is still a test environment, EY stated there should be pre and post launch tests where it’s not practical to review in full prior to launch.

EY made multiple observations about the need for more detail in requirements. One area concerns future tests: “The scope is stated as a single objective statement, with no further articulation of areas to test, the approach to testing, or the effort for the activity,” says EY’s report. Similarly, it recommends greater detail for governance and change management procedures.

Meanwhile, the ASX has encountered significant pushback by market participants, particularly from share registrars. That’s because CHESS’s greater efficiency will mean some of the share registrar’s functionality may no longer be needed.

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