CHESS Replacement

ASX is replacing CHESS with distributed ledger technology (DLT) developed by Digital Asset

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Background

The development of CHESS by ASX over 25 years ago enabled the successful dematerialisation of the cash equity market (the conversion of physical shares into an electronic format); a move to T+5 settlement (which was lowered to T+2 in March 2016); and improved the general efficiency and effectiveness of post-trade processing in Australia. CHESS was world-leading and led to the development of a proprietary electronic messaging standard because existing standards lacked the message sophistication to accommodate CHESS's functionality.

ASX performs these post trade functions on transparent and non-discriminatory terms of access, under the supervision of the Australian Securities and Investments Commission (ASIC) and the Reserve Bank of Australia (RBA).

Today, CHESS is the core system that performs the processes of clearing, settlement and asset registration, which are critical to the orderly functioning of the market. CHESS continues to be stable and to effectively deliver these services. This is demonstrated by CHESS's average monthly service availability over the last five years of 99.99%. While there is nothing to indicate that CHESS will not continue to provide this service level, ASX is replacing CHESS with distributed ledger technology (DLT) which will provide a broader range of benefits to a wider cross section of the market. While ASX works on the implementation of DLT, it will continue to support and invest in maintaining the high performance and availability of CHESS.

ASX commenced a process of evaluating replacement options for CHESS in 2015. In January 2016, ASX selected Digital Asset as a technology partner to develop, test and demonstrate to ASX a working prototype of a post-trade platform for the cash equity market using DLT (an example of which is commonly referred to as ‚Äėblockchain'). This initial phase of work was completed in mid-2016. In December 2017, ASX completed its own analysis and assessment of the technology which included:

  • Comprehensive functional testing of the critical clearing and settlement functions currently performed by CHESS

  • Comprehensive non-functional testing (scalability, security and performance requirements) for a replacement system when deployed in a permissioned private network

  • A broad industry engagement process to capture users input on the desired features and functions of a replacement solution

  • Third party security reviews of the Digital Asset DLT based system.

Information relating to the announcement is available from the ASX media release web page.