ASX is replacing CHESS with distributed ledger technology (DLT) developed by Digital Asset
On Tuesday, 4 September 2018, ASX released its response to consultation on ‘CHESS Replacement: New Scope and Implementation Plan’. The paper can be downloaded here. ASX received 41 written submissions from a wide variety of stakeholders, and ASX thanks those organisations for the time and effort taken in preparing their submissions.
The paper includes a summary of the responses received and details on the specific changes ASX will make to the new scope and implementation plan as a result of this feedback.
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.
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.
ASX provides regular updates on the CHESS Replacement project by webinar. If you would like to be included on ASX's contact list for the webinars, please contact the ASX project team at ASX CHESS Replacement.
The most recent CHESS Replacement webinar was held on 11 May 2018, and focused on the key points from the consultation paper.
The recording and presentation slides from this Webinar, as well as previous Webinars, can be found here.
ASX will advise the date of the next Webinar in due course.
ASX has prepared a document with tips on how to set up your PC for the optimal webinar experience.
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|
|Tuesday 9 October 2018, 3.00pm|
|Tuesday 27 November 2018, 3.00pm|
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||27 April 2018|
|Submissions to Consultation Paper due||22 June 2018|
|ASX releases Response to Consultation Feedback - confirmed Day 1 Scope & Implementation Plan||4 September 2018|
|First tranche of technical documentation released||December 2018|
|Customer Development Environment available||April 2019|
|Industry Wide Test Environment available||July 2020|
|Pre-Live Production Environment available||Mid-October 2020|
|Target go-live window||March – April 2021|
Distributed Ledger Technology solution
ASX will adopt distributed ledger technology for the replacement of CHESS.
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?
- What's the upside in replacing CHESS now?
- Who is Digital Asset?
- What is ASX's involvement with Digital Asset?
- How did ASX come to partner with Digital Asset?
- Is ASX using bitcoin?
- Will ASX give everyone access to the blockchain?
- 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?
What is blockchain?
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.
What is distributed ledger technology (DLT)?
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.
Why is ASX replacing CHESS?
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.
What does this mean for my business with regard to CHESS, and equities clearing and settlement?
The CHESS system and its procedures and operations remain unchanged. 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.
What's the upside in replacing CHESS now?
CHESS was an innovation and market leading when it was implemented over 25 years ago. CHESS is the system that dematerialised share ownership in Australia and continues to perform the functions of clearing and settlement for cash equities (shares). The upside in ASX replacing CHESS with new DLT includes; greater market efficiencies through better record keeping, reduced reconciliation, more timely transactions and better quality data.
Who is Digital Asset?
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.
Further details can be found by visiting https://www.digitalasset.com/about
What is ASX's involvement with Digital Asset?
ASX's relationship with Digital Asset is twofold:
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.
How did ASX come to partner with Digital Asset?
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.
Is ASX using bitcoin?
No. ASX is not using bitcoin or any cryptocurrency in any part of the development of its technology solution.
Will ASX give everyone access to the blockchain?
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.
How will ASX stakeholders participate fully in the innovation process?
As ASX progresses its work with Digital Asset, it will invite relevant stakeholders to review, provide feedback and help shape developments.
Are government and regulators involved?
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.
What do I need to do now, do I need to start planning resources, budget?
Further details on the scope and timeline were provided in ASX's response to consultation feedback paper (CHESS Replacement: New Scope and Implementation Plan) released in September 2018.
Will there be any further changes to CHESS in the interim period?
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.
You can contact the ASX CHESS Replacement project team on the following email address: