Last year the Australian Securities Exchange (ASX) notoriously dumped its six-year clearing and settlement blockchain project, the new CHESS. As a result, regulators are smothering the exchange in regulatory oversight as it decides on an alternative CHESS replacement. Now Greg Medcraft, the former Chair of the Australian regulator ASIC, urged a new advisory group to avoid abandoning blockchain.
“Blockchain is still happening. Successful blockchain deployment has not been about a big bang: internationally, exchanges are taking a modular approach, and this is where ASX should go,” Mr. Medcraft told The Australian Financial Review. “That is the logical approach. You have to learn to crawl before you can walk.”
He blamed the CHESS failure on project mismanagement rather than blockchain, adding, “We need to be able to legally enable ‘atomic’ settlement – and blockchain technology can be used to innovate around settlement, to reduce risk.”
A key advantage of blockchain is indeed atomic settlement, the blockchain equivalent of delivery versus payment (DvP). This has several advantages, including reducing counterparty risks. Even when settlement isn’t instant, it still supports shortening settlement times, as the new CHESS planned to offer.
Different stock exchange blockchain approaches
While stock exchanges around the world are embracing blockchain, there are a variety of approaches. In some cases, it is primarily being used for post trade. ASX technology partner Digital Asset worked with Deutsche Börse’s Clearstream to help it launch a bond registry and post trade platform D7 in 2021. A recent report from the Global Financial Markets Association (GFMA) identified post trade as delivering the most benefits from DLT adoption, with custody and asset servicing close behind.
However, several other stock exchanges are now looking at a more expansive approach to tokenization beyond using DLT post trade for current offerings. They want to participate in tokenizing less liquid asset classes. That includes many of the most recent project announcements, including from the London Stock Exchange earlier this week.
Likewise, Tokyo Stock Exchange operator JPX is involved in tokenized green bonds with plans to launch tokenized stocks by 2025. The leader in the pack is the SIX Digital Exchange (SDX), which launched in 2021 providing primary issuance, a secondary market as well as a central securities depositary (CSD). It hosted the largest native digital bond so far, the UBS CHF 375 million issuance.