Capital markets News

ASX pauses DLT settlement project, writes off capital investment

  • Accenture review triggers pause in ASX DLT CHESS project
  • ASX to write off investment of A$250m ($169m)
  • ASX appoints a new project director
  • Regulators express displeasure

Following a review by Accenture, the Australian Securities Exchange (ASX) has paused its DLT-based replacement project for its CHESS settlement platform, which started in 2016. In August, a further delay in the project was announced after ASX and technology provider Digital Asset identified scalability and resiliency issues in certain parts of the project.

As a result of the Accenture review, the stock exchange is writing off its entire capital investment in the CHESS replacement project, which it estimates a A$245m – $255m ($169 million) pre-tax.

ASX has also appointed a new Project Director, Tim Whiteley. Bringing in a new leader seems understandable from a management point of view, but technical projects demand continuity. Hence, this, combined with some of Accenture’s findings and the financial write-off, means there’s only a slim chance of the project’s survival in close to its current form.

This was reinforced by comments from ASX’s new CEO Helen Lofthouse. “To be clear, the derecognition charge reflects the uncertainty of the future value of the current solution design. It does not prevent us from using parts of what we have already built if we determine there are adjustments we could make to our current design, which will enable it to meet ASX’s and the market’s high standards.”

Securities regulator ASIC and the Reserve Bank of Australia published a joint statement criticizing ASX for its management of the project.

“ASX has failed to demonstrate appropriate control of the program to date, and this has undermined legitimate expectations that the ASX can deliver a world-class, contemporary financial market infrastructure. said ASIC chair Joe Longo.

“The regulators are closely monitoring ASX’s ongoing management of clearing and settlement under its licences.”

One of the big concerns is that industry players have already invested time and money in adapting their systems to accommodate the new CHESS system.

Technical takeaways

Accenture assessed that the project is 63% ready but had reservations about the project management between ASX and Digital Asset. Its biggest concern appeared to be around design and complexity.

The consultants praised the Daml smart contract language (with some caveats) and Digital Asset’s code quality. But distributed architectures introduce latency and scalability issues. In this project, ASX is the sole arbiter of what transactions are logged. It particularly questioned why Daml was used for the entire business workflow as opposed to using it strategically.

Accenture’s view is that more of the business workflow could be implemented off-ledger. That’s because clients only see the end result of the workflow, so they can’t verify the calculation that was performed.

Currently, businesses favor a federated micro-services architecture. This involves lots of small independent software components. This loose coupling helps with maintenance. Accenture concluded that the replacement CHESS system using Daml is too tightly coupled making it hard to maintain, support and extend. It also expressed concerns about the need for specialist skills to implement Daml.

The Accenture report (Pg 19, 44) provides a rare public review of some of the pros and cons of the Daml smart contract technology, although there’s not massive detail. Accenture is an investor in Digital Asset.

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