ASX is replacing CHESS with distributed ledger technology (DLT) developed by Digital Asset
On 30 June 2020, ASX released its consultation paper on the CHESS Replacement Revised Implementation Timetable. The paper sets out key project activities and milestones including system development and testing, user testing, technical accreditation, operational readiness, and operating rule amendments. A copy of the media release can be found here.
The revised timetable has been produced to provide additional time for the ongoing impact of the COVID-19 pandemic on all stakeholders, accommodate functionality changes requested by users, and have a longer period for ASX and CHESS users to complete their respective development and readiness activities. The aggregate effect of these considerations produces a new go-live date of April 2022, 12 months beyond the original target go-live.
While no-one was predicting this significant increase in trading volumes that have occurred recently, it highlights the need to replace older systems across the industry with flexible, contemporary technology. This requires prioritisation by ASX and CHESS users, but also prudent planning given the impact of COVID-19 to ensure that CHESS is replaced both in a safe and timely manner.
Written submissions from CHESS users are requested by 28 July 2020.
Also on 30 June 2020, ASX published updates to ASX documentation in 'June 2020 - Documentation Release Notes.' This update includes new ASX Procedures & Guidelines content, additional accreditation scripts and updates to some areas of functionality from prior publications.
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, asset registration, and some other post trade services 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 ‘blockchain'). 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 that CHESS would be replaced with distributed ledger technology developed by Digital Asset is available on the ASX media release web page.
Guiding principles for the replacement of CHESS
Operate for the benefit of issuers and end investors
Provide issuers and end investors with greater control over, and enhanced confidence in, their market activities through timely, secure and simplified access to the register of holders (for issuers), financial assets (end investors) and associated information.
Take future needs into account
Meet and respond to changing local and global markets, and promote further innovation through new levels of functionality, open standards and flexible technology.
Be readily available to those who are authorised to use it in a non-discriminatory manner.
Ease of integration and global interoperability
Ensure capacity to integrate with upstream and downstream business systems, and embrace global standards and openness to competition through interoperability in a cost-efficient way.
Availability, reliability and performance
Provide users and regulators with confidence that the solution will be available and transactions performed as and when expected.
Privacy and security
Provide users with confidence that the system is traceable and secure, and that it won't expose them to new risks as a result of information being fraudulently obtained or corrupted.
Streamline functions and workflows, remove embedded paper-based processes and mitigate manual errors, and be effective and cost-efficient to operate, support and enhance.
Comply with relevant laws, regulations and licences relating to the operating entities.
ASX has undertaken comprehensive stakeholder consultation to gain a better understanding of the new functionality and services that users of CHESS would like delivered by the replacement system. This process commenced in September 2016 with the release of a public consultation paper 'ASX's Replacement of CHESS for Equity Post Trade Services: Business Requirements'. ASX also released a supplementary questionnaire in December 2016 to seek further feedback on specific topics.
Feedback from the 2016 consultation paper and supplementary questionnaire, along with any bi-lateral meeting feedback from users, was collated and categorised into six working groups as follows:
- Account structures and participant models
- Corporate actions
- Transfers and conversions
- Settlement enhancements
- Data storage, delivery and reporting
- Non-functional requirements
The purpose of the working groups was to discuss, elicit and capture users (high level) business requirements on the system to replace CHESS. On the conclusion of the working groups in November 2017, the working groups had identified 40 functional and 5 non-functional business requirements. The final set of functional business requirements were presented to the participating organisations of the working groups for prioritisation.
This provided ASX with another input to assist in gauging the relative importance of each of the business requirements to different stakeholder groups.
The 2018 consultation paper on the 'New Scope and Implementation Plan' set out the enhancements that ASX planned to deliver in the CHESS replacement system, which included new functional business requirements captured through the stakeholder working group process. ASX received 41 submissions in response to its consultation paper from a wide variety of stakeholders, representing the views of a wide cross section of industry. In September 2018, ASX provided its response to consultation feedback which included a summary of the responses received and details on the specific changes ASX has made to the new scope and implementation plan.
ASX also established an ISO 20022 Technical Committee comprising ASX (Chair) and industry representatives to focus on CHESS messaging and the adoption of ISO 20022 messaging. Further details can be found below.
Next steps include:
- Ongoing ISO 20022 Technical Committee meetings
- The formation of new industry working groups to facilitate transition planning - including connectivity, integration, implementation and transition, comprising a broad range of relevant stakeholders
- Further round tables with industry stakeholders, including issuers
- Continue with demonstrations of the CHESS replacement software prototype in ASX's acceler8 space
- Webinar industry updates
- Website, email and market notice updates, where necessary
If you would like to be added to ASX's contact list for this project, please email ASX.
|Implementation & Transition Working Group|
|Date and time||Topic||Attendees||Venue/Format|
|Monday 13 July, 2020, 2pm-3.30pm||Consultation paper on the revised implementation timeline||By invitation||Webinar|
|For previous Implementation & Transition Working Group presentations and upcoming session details click here|
|Connectivity & Integration Working Group|
|For previous Connectivity & Integration Working Group details click here|
|For previous Focus Group details click here|
|For previous ISO 20022 Technical Committee details click here|
Rule Amendment and Public Consultation Timeline
ASX has been engaging with regulators in relation to the rules and other relevant regulatory aspects that need to be addressed to support any new or changed services and functionality for the new system, including our consultation process on the rule amendments involving three tranches of amendments.
The first tranche of operating rule amendments was released for public consultation on 15 November 2019, with the period for feedback closing on 17 January. ASX released its response to consultation feedback on the tranche 1 rule amendements on 22 May 2020.
The second tranche of operating rule amendments was released for public consultation on 21 February, with the period for feedback closing on 29 May.
Consultation on the tranche 3 draft rule amendments and on a consolidated rules package (across the three tranches) is proposed for early November 2020 with a 15 week consultation period, subject to feedback received through the consultation on the new CHESS replacement timetable released on 30 June 2020.
Public Consultation on Tranche 1
On 15 November 2019, ASX released a consultation paper on the first of three tranches of operating rule amendments required to facilitate the implementation of the new system that will replace CHESS in April 2021. These relate to accounts, participants, securities and pre-settlement aspects for Day 1 CHESS replacement system functionality.
The consultation paper invited feedback from users and other stakeholders on the operation of the draft tranche 1 rule amendments, including any unintended consequences.
Written submissions closed on 17 January 2020.
On 22 May 2020, ASX released its response to consultation feedback received on the tranche 1 draft rule amendements. The response to consultation feedback contains:
- a summary of feedback received in stakeholder submissions;
- ASX's response to such feedback; and
- the draft rules changes made to the ASX Settlement Operating Rules and Procedures and ASX Clear Operating Rules and Procedures, which take into account feedback received.
ASX received a total of 12 submissions from a range of stakeholders including participants, registries, industry bodies and vendors.
Public Consultation on Tranche 2
On 21 February 2020, ASX released a consultation paper on the second of three tranches of operating rule amendments required to facilitate the implementation of the new system that will replace CHESS. These relate to corporate actions, mFund and RTGS payment aspects for 'Day 1' implementation of CHESS replacement system functionality. RTGS will support payments for corporate actions involving entitlement acceptances as well as payments for bilateral demand settlement instructions (addressed in tranche 1 rule amendments).
The consultation paper invited feedback from users and other stakeholder on the operation of the draft tranche 2 rule amendments including any unintended consequences.
Written submissions closed on 29 May 2020. ASX is currently considering the feedback received on the tranche 2 rule amendments and proposes to release its response to consultation feedback received on those rule amendments in mid-September 2020.
Consultation Paper 2018 – ASX CHESS Replacement: New Scope and Implementation Plan
In April 2018, ASX released a consultation paper to:
- Understand if there is any important new business requirements that have not been captured
- Invite feedback on the proposed testing and release management strategy
- Invite feedback on the proposed migration and implementation approach
- Understand if there is any particular information stakeholders will need to assist in transition planning
A copy of: the 2018 Consultation Paper; submissions provided on a non-confidential basis; and ASX’s response to consultation feedback can be found by clicking here.
Consultation Paper 2016 – ASX’s Replacement of CHESS for Equity Post-Trade Services: Business Requirements
In September 2016, ASX released a consultation paper to:
- Provide the market with an update on ASX’s evaluation of DLT;
- Set out ASX’s preliminary thinking on the business requirements for a system to replace CHESS; and
- To seek initial views from users on their business requirements.
ISO 20022 Technical Committee
The ISO 20022 Technical Committee comprising ASX (Chair) and industry representatives has been formed to focus on CHESS messaging and the adoption of ISO 20022 messaging. The adoption of ISO 20022 is a major workstream for the CHESS Replacement project and members of the Committee will be involved in the detailed work associated with this workstream. The key objectives, activities and governance of the Committee are outlined in the Charter.
The upcoming meeting schedule is provided below:
|Meeting Date and Time||Meeting agenda and attendees||Meeting documents|
If you have any questions about the Committee please contact ASX at CHESSReplacement@asx.com.au
|Develop a prototype platform using DLT technology||January 2016 - July 2016|
|Initial public consultation paper disseminated||September 2016|
|Working groups, round tables, bilateral meetings - identified 45 business requirements||May 2016 - November 2017|
|Build out the prototype to an 'industrial scale' platform using DLT technology||November 2016 - December 2017|
|Announcement of commitment to DLT in partnership with DA||December 2017|
|Consultation Paper on New Scope & Implementation Plan||April 2018|
|ASX releases Response to Consultation Feedback - confirmed Day 1 Scope & Implementation Plan||September 2018|
|Customer Development Environment available||End of April 2019|
|Consultation on implementation timetable||June 2020|
To access the documentation for the first time, you will need to register using your details. Each subsequent tranche of technical documentation will be communicated by email notification to registered users.
The Customer Development Environment (CDE) is now live (read the media release here). It provides an isolated, low volume application development environment for those who have established connectivity to CDE. The first drop of code into the CDE is now available.
The ASX CHESS Replacement technical documentation site went live in December 2018. The content is structured in a wiki style for ease of reference, and to support the iterative approach to the release of the technical documentation. This not only allows technical documentation to be easily updated with incremental or refreshed information, but it also allows readers to easily navigate the site to ensure they always access the most up-to-date information. A detailed description on how to navigate the Technical Documentation was included in a webinar held on 12 December, 2018. The recording and presentation slides are available here.
The technical documentation will be made available in tranches at least three months prior to each incremental software drop into the customer development and test environment.
For questions specific to the technical documentation or the CDE test environment, please contact the ASX project team at CSPSupport@asx.com.au. All other CHESS Replacement enquiries can continue to be directed to CHESSReplacement@asx.com.au.
Distributed Ledger Technology solution
ASX will adopt distributed ledger technology for the replacement of CHESS.
An archive of our communications and latest news is available here.
Frequently asked questions
- What is blockchain?
- What is distributed ledger technology (DLT)?
- Why is ASX replacing CHESS?
- What does this mean for my business with regard to CHESS, and equities clearing and settlement?
- Who is Digital Asset?
- Is ASX using bitcoin?
- Will ASX give everyone access to the distributed ledger?
- How will ASX stakeholders participate fully in the innovation process?
- Are government and regulators involved?
- What do I need to do now, do I need to start planning resources, budget?
- Will there be any further changes to CHESS in the interim period?
- How can participant connect to the new system?
- What is DAML?
- What are the key features of a node?
- What are the benefits of direct access (via a dlt node)?
- Where do I find out more about how the service will work, connectivity options and functionality?
- What are the main differences between CHESS EIS messaging and ISO 20022 messaging?
A blockchain is a method of structuring data to create an immutable record of all updates to a ledger across multiple organisations. Blockchain is a type of distributed ledger technology (DLT). These terms are often used interchangeably. Not all distributed ledgers employ blocks or chain transactions.
A distributed ledger is a digital record of who-owns-what that can be securely shared to and updated by multiple organisations so that every entity is sure that what they see is what their counterparties see in near real time. But unlike traditional database technology, there is not necessarily a central administrator of the ledger, nor is there the need for a central data store.
While CHESS is a stable and reliable system, it is over 25 years old. It is time for it to be replaced with more contemporary technology in the next few years. CHESS was an innovation and market leading when it was implemented over 25 years ago, marking the way for the dematerialisation of share ownership in Australia. CHESS continues to perform the functions of clearing and settlement for cash equities (shares).
ASX replacing CHESS with new DLT brings greater benefits which include; greater market efficiencies through better record keeping, reduced reconciliation, more timely transactions and better quality data.
The CHESS system and its procedures and operations remain unchanged and CHESS continues to be supported by the ASX. The existing equities clearing and settlement arrangements will continue to operate normally until ASX advises the market of any changes related to the replacement of CHESS.
Digital Asset is the leading provider of distributed ledger technology to regulated financial institutions. Digital Asset combines unparalleled financial markets leadership with world class technologists across multiple fields in one of the fastest growing fintech companies in the world. The Digital Asset Platform is the only Distributed Ledger platform to have been developed according to the production requirements of the world’s largest financial institutions. Founded in 2014, Digital Asset now has offices in six countries, serving global clients like the ASX and DTCC. They understand the needs of regulated markets and how to apply this new technology to existing institutions effectively and safely.
ASX conducted a global search for DLT companies working on applications of DLT for financial services. Viability workshops were then conducted with a shortlist of firms. The list was further narrowed, with some firms invited to Sydney for an intensive development and analysis workshop. At the conclusion of this process, Digital Asset was selected as the successful partner. ASX's relationship with Digital Asset is two fold:
i) As a shareholder with a director appointed to Digital Asset’s Board; and
ii) As a joint development partner to produce a replacement system for CHESS.
Further details can be found by visiting https://www.digitalasset.com/about
No. ASX is not using bitcoin or any cryptocurrency in any part of the development of its technology solution.
No. ASX is not using a publicly available implementation of DLT. ASX will use a permissioned system where ASX clients – that meet the necessary regulatory requirements - are permissioned to access the network, just as they do today when connecting to CHESS.
Yes. To ensure the maintenance of Australia’s extremely high standards for critical financial market infrastructure, ASX is keeping government and regulators involved in developments and across all relevant decisions.
ASX provided details on scope and timelines in a response to the consultation feedback paper released in September 2018 – see Key Milestones. A first release of Technical Documentation for the DLT system has now been released. See Latest Updates for further details.
Any required changes to the existing CHESS system will be limited to service, support and high priority items. ASX publishes a quarterly Market Notice to advise of technology upgrade releases planned for the next 6 to 12 months across the various customer facing platforms, including CHESS.
At a high level, there are three main connectivity options:
1. The first option is direct integration where a user is transacting with the new system via a node. Initially this is only being offered to clearing and settlement participants but will made available to other interested users over time.
2. The second option is messaging and is similar to how users interact with CHESS today by sending and receiving messages to keep systems updated. For users wanting to connect using messaging, they can either use AMQP over ASXNet or alternatively they can use SWIFTNet. Both options use ISO 20022 messaging.
3. The third option is a new secure browser based solution. This can be used by low volume users but also provides a channel for entering ad-hoc messages which are not supported elsewhere.
See Webinar recording and presentation slides on 3 October 2018 for further details.
A key element of CHESS Replacement is the use of the DA Platform and Digital Asset Modelling Language, or DAML.
DAML is a domain-specific language for modelling financial products and processes which has been designed for distributed ledgers. It codifies complex, real-life, multi-party agreements with deterministic execution and contains built in safeguards for type-checking, testing & refactoring.
All modifications to the ledger happen via DAML commands, resulting in DAML events. The ledger is updated by a participant upon submission of a valid transaction (DAML command). The rules as encoded in DAML dictate under which conditions contract instances are added/archived.
DAML defines the need-to-know basis automatically, on a per-contract basis, enabling the DA Platform to deliver confidentiality characteristics without sacrificing integrity. Contract events or transactions are broken up into sub-transactions as necessary, based on participants’ rights to data, and these sub-transactions are then selectively permissioned to participants.
For further information please click here.
A Node is software that allows participants to connect to the CHESS Replacement distributed network directly. ASX will initially host the node within ASX data centres which allows participants to propose transactions, stream data and interact with their permissioned data.
Interaction via a node is carried out using the Ledger API - no messaging gateway is required. Once a transaction is submitted to a node, the relevant calling application will receive both an update to the success of the transaction as well as the resulting state change.
- Access to shared source of truth data – full permissioned access to data held by ASX
- Liberation of data to entitled parties
Real-time updates to state changes
- Real time updates to state changes without having to maintain a disparate system
- Common database stack allowing new applications to work across the market
- New applications can access data directly from the ledger and incorporate into subsequent processes or workflows
- Multiple applications can connect directly without the need to go through traditional back offices as a gateway
- Client developed workflow – the potential to develop your own templates in DAML
Innovation and extensibility
- Incorporate functionality to supplement existing functions e.g. query and analytics, automate risk and compliance
- Extend platform to replace existing tools e.g. trade allocation
Where do I find out more about how the new service will work, connectivity options and functionality?
In December 2018 ASX released the first tranche of Technical Documentation. The purpose of the Technical Documentation is to facilitate development and testing of the CHESS Replacement application. There will be subsequent releases of documentation. This documentation is broken down in to:
- Functional specifications, messaging, connectivity, environments; and, testing
- Additional support materials including release notes, what’s new, FAQs and a glossary.
See Latest Updates for details of how to register and access the Technical Documentation portal.
CHESS External Interface Specification (EIS) messaging is a proprietary message protocol developed specifically for communication between CHESS and its users. ASX will adopt a global standard messaging protocol for CHESS Replacement – ISO 20022. The move to a global messaging standard will streamline the existing suite of messages, facilitate more efficient processing and provide a richer data set. It is also expected to provide benefits to users who also operate in other markets, where global standards are typically used. The adoption of ISO 20022 will result in some change, across a number of perspectives including file format, business processes, field values and formats and the consolidation or rationalisation of CHESS EIS messages compared to ISO 20022. More information on ASX’s adoption of ISO 20022 can be found in the ISO 20022 Messaging section of the CHESS Replacement Technical Documentation.