Blockchain for Banking Capital markets News

Chi-X voices competition concerns over ASX blockchain project

ASX Australian Securities Exchange

Today, markets operator Chi-X reportedly shared its concerns over the Australian Securities Exchange (ASX) blockchain project. The ASX plans to replace its clearing and settlement system with a blockchain solution, but, according to Reuters, Chi-X thinks the project disadvantages other firms.

This is not the first controversy ASX has seen over its blockchain plans. In the initial stages, members were rumored to be unhappy with the change. They then commissioned a report from Deloitte on competition and a lack of analysis on the benefits. Not long after that report, a formal complaint was lodged to the Australian Competition and Consumer Commission (ACCC).

Now the exchange’s biggest client and only competition, Chi-X, has publicly suggested the ACCC look further into the blockchain project. The firm, which processes a fifth of Australia’s share trades, depends on ASX’s clearing system. ASX plans to replace the 25-year-old CHESS system with one based on blockchain technology by 2021.

But, as Michael Somes, Chi-X’s General Counsel, claims: “There’s a substantial moat around the ASX clearing and settlement business…and the CHESS replacement project is perhaps making it bigger.”

“It would be very difficult for the competition to bridge that moat – I’m not saying it won’t happen… but it needs to be regulated as if it won’t,” he continued.

Chi-X joins share registry firms, Computershare and Link Administration, in voicing its concerns over CHESS. The clearing and settlement system already has a monopoly. But, by completely overhauling it with a new system based on blockchain, the firms believe they will experience disruption and an unfair disadvantage.

Australia’s Financial Review separately reports that a group of firms want regulators to accelerate enforcement of “appropriate parameters around the ASX’s use of its monopoly powers”. It claims that fears come from equity issuers, secretaries, and stockbrokers along with share registries.

The ASX has maintained that it is already working with regulators, and stakeholders are welcome to join the committee overseeing CHESS. Members using the upcoming system don’t have to host a blockchain node; they can instead use existing messaging standards if they wish.

Despite the controversy, ASX’s FY19 results reaffirmed the goal of replacing CHESS by March 2021. The exchange had also hired over 100 new staff, some of which will join the new ‘DLT Solutions’ team. Digital Asset (DA) provided the technology using its ledger and smart contracting language, DAML. Two months ago, it was revealed that VMware will join ASX and DA in building financial blockchain solutions. The underlying ledger will be VMWare’s using DAML.