ASX increases oversight of CHESS Replacement following damning ASIC report on outage

ASIC looks to mitigate risks of future ASX tech upgrades by imposing additional licence conditions on three licences held by the equities exchange.

By Anita Hawser

The Australian Securities Exchange (ASX) is strengthening its project governance and execution practices after an independent expert report into a serious outage at the exchange last November imposed additional licence conditions.

The Australian Securities and Investments Commission (ASIC) recently concluded its investigation into the November 2020 day-long equity exchange outage, caused by a software issue on the  refreshed ASX Trade system, which created inaccurate market data.  The technical issue coincided with the launch date for the upgraded ASX Trade system.

Following its investigation, ASIC imposed additional licence conditions on three licences held by ASX. The conditions are focused on mitigating risks for future tech upgrades, with specific emphasis on oversight of the CHESS Replacement Program, which is scheduled to go live in April 2023. ASX is upgrading its aging CHESS clearing and settlement system to Distributed Ledger Technology.

“The ASX outage was a very serious event, exacerbated by subsequent operational issues,” said  ASIC chair Joe Longo. “The imposition of these licence conditions will confirm that remedial actions are implemented appropriately and efficiently to address these operational issues – including for the critical rollout of the CHESS Replacement Program.”

ASIC’s report into the outage highlighted serious deficiencies in ASX’s and market participants’ ability to limit the outage’s impact on overall liquidity. Some of these deficiencies had already been highlighted in an earlier review by ASIC after a previous outage at ASX in 2016. “ASX and market participants must act to ensure that the market can function at all times, so that vital sources of capital are available to the economy,” said Longo.

ASX has agreed to address the recommendations of the independent expert report into the outage, which it expects to complete over the next 12 to 18 months. “We are pleased that ASIC’s investigation into the market outage is closed and that no breach of ASX’s licence conditions was found,” said Dominic Stevens, ASX managing director and CEO. “However, we will continue to invest to strengthen the quality of our infrastructure and reduce operational risk.”

Stevens said work to fulfil the new licence conditions is well underway, and that additional conditions would apply to its market and clearing and settlement licences.

“These new conditions relate to actions ASX is taking to strengthen its project governance and execution practices,” ASX said in a statement. In summary they involve: 

  • addressing the independent expert recommendations following the market outage and appointing an independent expert to assess the remediation;
  • appointing an independent expert to assess ASX’s assurance program for the implementation of the CHESS replacement program;
  • while the program is ongoing, requiring attestations from senior executives and the Board about technology project readiness.

Where relevant, Stevens said ASX is applying lessons from the outage to its CHESS replacement and is strengthening the project by appointing an independent expert to assess the assurance program.

“I am proud of the work the team has done over the last five years to reduce outages and incidents across ASX by close to 90%,” he stated. “In addition, when the CHESS replacement goes live in April 2023, a significant upgrade program across all levels of our equities technology stack will be complete, with the average age of our technology dropping from over 13 years old to four years old.”

While no process can eliminate all possibility of technology incidents, Stevens said ASX’s continuous improvement programmes had contributed to a significant reduction in incidents over the last five years.

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