The Australian Securities Exchange (ASX) has faced industry criticism after choosing to pause its CHESS replacement project, as part of a plan to “reassess all aspects” of the planned update.
The decision follows ASX’s own internal assessment and the completion of an independent review, conducted by Accenture. The independent report identifies significant challenges with the solution design and its ability to meet ASX’s requirements.
ASX’s decision has been called “a barrier to the country adopting technologies”, by Tony Boyd, a columnist for the Australian Financial Review.
He adds: “Unfortunately, ASX management and its board of directors have proven over the past seven years they do not have the technical skills to manage a large-scale technology project, or the self-awareness to know that what they are doing is investing in a technology dead end.”
Despite the controversial decision, the ASX has said the current CHESS system “remains secure and stable”, and is “performing well”.
Accenture’s review was commissioned by ASX to review aspects of the CHESS replacement project focused mainly on scalability, resiliency and supportability of the application, and to advise on confidence in executing the application delivery plan.
It finds that the application software is 63 per cent complete when considering functional requirements. However, the report also identifies complexity in the integrated solution design, including in the way ASX requirements interact with the application and underlying ledger.
Accenture says: “These complexities contribute to challenges in achieving the necessary supportability, scalability and stability for clearing and settlement.”
The report identifies vendor management issues in the way teams from ASX, and its delivery partner Digital Asset operate and interact, which present challenges in project delivery.
The report also observes a “number of inefficiencies” in the delivery lifecycle through to testing, with siloed execution and reporting resulting in misaligned views of status on delivery progress, risks and issues.
Commenting on the report, Damian Roche, chairman of ASX, says: “We began this project with the latest information available at that time, determined to deliver the Australian market a post-trade solution that balanced innovation and state-of-the-art technology with safety and reliability.
“However, after further review, including consideration of the findings in the independent report, we have concluded that the path we were on will not meet ASX’s and the market’s high standards. There are significant technology, governance and delivery challenges that must be addressed.
“ASX provides critical market infrastructure. What we do matters. We must do it right and we will.”
Effective today, 17 November, ASX has appointed Tim Whiteley as project director for the next phase of the CHESS replacement project.
He will be responsible for revisiting the solution design, establishing new project governance arrangements, strengthening vendor management and positioning the project for the next delivery phase.
CHESS’ original go-live date was set for April 2022, but was then pushed back to April 2023, mostly due to the impact of COVID-19 on the industry, particularly throughout 2020 in areas including collaboration and productivity.
Though, in 2021, most users indicated that they could meet the new proposed live date of April 2022, many asked for extra industry testing as well as more time to prepare for the new system. Some users also requested additional functionality that reduces manual processes, such as electronic corporate action elections.
The Australian Securities and Investments Commission (ASIC) and the Reserve Bank of Australia (RBA) are co-regulators of licensed clearing and settlement facilities.
In a joint statement they say: “ASX’s announcement marks a significant setback to the replacement of critical national infrastructure for Australia’s cash equity markets and now brings into sharp focus the longevity of the existing CHESS platform.”
Joe Longo, chair of ASIC, adds: “The ASX has failed to demonstrate appropriate control of the programme to date, and this has undermined legitimate expectations that the ASX can deliver a world-class, contemporary financial market infrastructure.
“The regulators are closely monitoring ASX’s ongoing management of clearing and settlement under its licences. Our immediate focus is to ensure current CHESS continues to provide the level of service, reliability and resilience that is required. The regulators will bring to bear the full range of regulatory options to ensure this is the case.”
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