The ASX has abandoned technology upgrades more than five years after it began. Pictures/NZME
In 2020, I traveled to the Australian Securities Exchange (ASX) for a private briefing on their plans to update their core trading systems.The idea is for the ASX to introduce me to
project and get back to me when the new technology is ready to go live later that year, at which point I’ll write a story about it.
I’m still waiting to hear back. A magazine editor asked me to write a story about ASX’s plans to develop a blockchain clearing and settlement system that would facilitate currency and share transactions between buyers and sellers.
ASX is not yet ready to speak publicly about the project to replace its aging CHESS system, but is happy to provide an informal briefing before making any public announcements
I’m not a tech expert, but as a business reporter, I’m well aware of how technology can improve the way businesses operate and serve customers.
Even so, I found the briefings from the ASX technical leaders to be incredibly complex. Although they have been working on the project since 2017, they have not been able to clearly articulate what the new clearing system will achieve and how to achieve it.
It’s always a red flag when a business strategy or project is so complex that it can’t be explained to a moderately intelligent generalist like myself.
It was no surprise this week that the ASX canceled the project and announced that it would write off a quarter of the $1 billion spent on its development.
The technology will bring the ASX’s settlement process into the 21st century, where transactions take just seconds. Currently, ASX settlement is T+2, which is the trading day plus two working days. If you sell stock on Monday, you won’t get your cash until Wednesday.
The failure of the project – after the launch date was pushed back at least five times – is a blow to the credibility of the ASX and Australia’s reputation as a modern financial centre.
There are two big problems with this disaster.
The first is why the ASX opted for new and unproven blockchain technology when it signed off on the project in 2016. Despite blockchain’s enormous potential to revolutionize financial services, its adoption remains difficult, and it is still not widely used until 2022. This is even more true in 2016.
It is questionable why the ASX, which has a monopoly license to clear and settle Australian equity and derivatives trades, has chosen to undertake such a speculative project for a nationally important financial infrastructure.
The ASX announced it was shelving the project last week, saying there was still no firm completion date. The project could not guarantee the scalability and stability needed for this critical financial infrastructure, and ASX had “problems” with the way it was working with software providers. A report by consultancy Accenture also highlighted significant gaps and deficiencies in system design and ASX’s ability to deliver.
This brings us to the second and more important question – why did it take the ASX so long to finalize the project.
This is a colossal failure for ASX executives and their board. They should have been following the project closely, receiving regular updates from the project lead. They may be, but their failure to act early begs the question of whether they got the full picture or acted quickly on the information they received.
It’s no longer good enough for corporate boards to claim they don’t understand technology. Directors were supposed to keep a close eye on project leaders, ask tough questions that could drill into projects, and assess project progress with the help of independent technical experts.
Several ASX directors have been with the company for six or seven years, including one as far back as 2009. Shareholders will ask about their future on the board and their ability to govern and oversee a company. Success is so dependent on technology.
Ultimately, the company brought in Accenture, whose independent review led to the project being shelved.
But as recently as February, former ASX chief executive Dominic Stevens promised to go live by the middle of next year.
New ASX chief executive Helen Lofthouse, who took over in August, broke the bad news to the market.
Regulators are furious after revelations could threaten the ASX’s market monopoly. ASIC Chairman Joe Longo showed in an unusually blunt statement that his patience was running out, saying: “ASX’s failure to date to demonstrate adequate control of the scheme undermines what ASX could reasonably expect from the ASX A world-class modern financial market infrastructure can be provided.”