The Australian Securities Exchange (ASX) has appointed global technology provider TATA Consultancy Services to develop a new share settlement and clearing infrastructure to replace its Clearing House Electronic Subregister System (CHESS) which handles millions of trades per day.
The regulator said in a statement it had completed its reassessment of the solution design to replace CHESS and would proceed with a product-based solution to be delivered by TATA.
The CHESS replacement project will now move to the next phase of detailed design and implementation, with further stakeholder consultation to commence in the first quarter of 2024.
Two-phase approach
The ASX outlined a two-phase implementation for the new CHESS, with the initial phase encompassing the clearing service and scheduled for completion in 2026.
This is projected to cost between $105 million and $125 million.
The subsequent phase involving the upgrading of the settlement and sub-register function is planned for 2028 or 2029, with costs to be determined post-2024 following stakeholder consultations.
This staged approach is expected to reduce delivery risk and will help to manage the impact on industry stakeholders, as compared to a single cut-over approach, it said.
TATA's product is already in use in Finland, South Africa and New Zealand, and is being implemented in Canada.
Extensive consultations sought
“When we took the decision to reassess the CHESS replacement solution design, we wanted to select a solution that would serve the whole market, and to do that we needed extensive input from our customers and industry stakeholders,” ASX managing director and chief executive officer Helen Lofthouse said in the statement.
“We significantly increased engagement during 2023 and the selected product, implementation approach and scope reflect discussion and feedback from various forums.
“We had clear objectives for our selection process. These included meeting current and future market needs and our licence obligations, enabling a safe transition from the incumbent platform, minimising industry impacts where possible and having the capability to provide interoperability and facilitate future innovation as driven by market demand.
“This next phase of the project will be a multi-year undertaking and ASX will maintain our investment in the current CHESS platform to ensure it continues to operate efficiently and reliably until the replacement is implemented.”
Increased scrutiny
Australian Securities and Investments Commission (ASIC) chairman Joe Longo has emphasised the need for the ASX to concentrate on market engagement and realistic timelines for the CHESS Replacement program.
Similarly, Reserve Bank of Australia (RBA) governor Michele Bullock has also stressed the importance of addressing past issues identified in various external audits and reviews.
The ASX, regulated by both ASIC and RBA, has seen increased monitoring by the regulators. The CHESS replacement project, initiated in 2015, has faced multiple delays and eventual cancellation.
Bond issue
The ASX plans to adopt a "modular architecture" for the system, enabling other market operators to access and interoperate with the new clearing, settlement and sub-register services.
Additionally, it has engaged Accenture (NYSE:ACN) to assist in project delivery as a solution integrator.
To support this capital expenditure, the ASX is planning a bond issue of between $200 million and $300 million.
The cancellation of an earlier blockchain-based replacement project led to a $250 million write-down for the ASX.