Capital markets News

ASX starts tests of blockchain post trade solution, but regulator is watching

ASX australian securities exchange stock

Today Australian stock exchange ASX unveiled the first iteration of its Industry Test Environment (ITE1) for its blockchain post-trade solution CHESS. It’s not the first time that software providers and in-house developers get a look at the system. But previous access had more limited functionality and was for low volume testing.

The solution uses Digital Asset’s DAML smart contract language and VMWare’s Blockchain. While today’s announcement is for developers, end users will access another iteration of the test environment from April 2022, with an April 2023 planned launch date.

The Australian exchange was a clear first mover when it comes to using blockchain in the sector. And as a result, it’s had its fair share of ups and downs. Several market players, especially share registrars and competing exchange Chi-X, opposed the blockchain system on competition grounds. One of the reasons for the latest delayed launch date was to appease the registrars.

Regulator reacts to 2020 outage

Last week, the Australian Securities & Investments Commission, ASIC, censured the ASX over an outage in November last year. The stock exchange went down after a software upgrade not related to CHESS. According to an IBM review of the incident, it believed the software was not ready to go live. 

Given the size and impact of the blockchain CHESS replacement, as of last week, the regulator now requires an independent expert to assess whether CHESS is fit for purpose and report to ASIC regularly.

But the regulator went a lot further in requiring market participants to reduce their dependence on ASX. During last year’s outage, transactions on competitor Chi-X actually declined for several reasons, including whether it would be in line with best execution policies. The regulator will now require traders to be ready to switch to Chi-X in the event of an outage.

The timing is unfortunate, as this overshadows a very major positive milestone in the project with the unveiling of the testing environment. Additionally, this month, the stock exchange launched a blockchain as a service platform, Synfini, enabling organizations to launch blockchain solutions with DAML and VMWare on ASX’s DLT infrastructure. 

Meanwhile, other stock exchanges and post-trade solutions are taking additional steps in blockchain, although few are as ambitious as ASX’s. In Switzerland, the SIX Digital Exchange (SDX) launched earlier this month with the issuance of a digital bond as a security token. Last week, Tokyo Stock Exchange operator JSX announced a new digital subsidiary. And giant U.S. post-trade organization DTCC plans to launch Project Ion in 2022 to shorten settlement times.

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