ASX to replace equity post-trade systems with blockchain

After two years of development and testing, the ASX will replace CHESS with blockchain technology.

By Hayley McDowell

The Australian Stock Exchange (ASX) has confirmed plans to use blockchain technology for the clearing and settlement of equity transactions, following months of speculation on the move.

Blockchain specialist Digital Asset will provide the distributed ledger technology (DLT) to the exchange and will replace its existing Clearing House Electronic Subregister System (CHESS).

The move follows extensive development of DLT for equity post-trade functions and testing carried out by both ASX and Digital Asset over the past two years.

The final scope of functionality for the new system will be finalised through an extensive consultation with shareholders, which will then be published for market feedback in March 2018.

ASX said the testing phase confirmed the exchange operator’s confidence in blockchain technology and Digital Asset’s ability to deliver it.

“Having completed this work, we believe that using DLT to replace CHESS will enable our customers to develop new services and reduce their costs, and it will put Australia at the forefront of innovation in financial markets,” said Dominic Stevens, CEO at ASX.

ASX’s blockchain project was heralded as a potential turning point for the post-trade industry at Sibos earlier this year, and could serve as the basis for other market infrastructures to revamp their systems using the technology.

At the time of the conference, ASX was yet to confirm its decision to replace CHESS using blockchain technology, although panellists predicted it would be a ‘big moment’.

“This is the most advanced project in the infrastructure place, and they will be making a decision on how to move forward with that project,” Chris Church, chief business officer at Digital Asset told delegates. “That will be a big moment for this industry to prove if this technology can work.”

Blythe Masters, Digital Asset CEO, described ASX’s final decision on using blockchain as being “the first meaningful proof that the technology can live up to its potential”.