CHESS Replacement

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

 Latest Updates
 

Latest Updates

ASX is undertaking a public consultation that will outline the proposed scope and implementation plan, including a 'window' for the live date of the new system.

This consultation paper will be released in April 2018.

Details concerning the next CHESS Replacement webinar will be provided in due course.

Frequently Asked Questions (FAQs) can be found on this web page, or you can contact us directly at the email address below.

 

Background

ASX is replacing the system that underpins post-trade processes of Australia's cash equity market, known as CHESS (the Clearing House Electronic Subregister System) with distributed ledger technology (DLT) developed by Digital Asset.  The announcement confirming this decision is available from the ASX media release web page.

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 ‘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.

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.

Accessibility

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.

Operational efficiencies

Streamline functions and workflows, remove embedded paper-based processes and mitigate manual errors, and be effective and cost-efficient to operate, support and enhance.

Compliant

Comply with relevant laws, regulations and licences relating to the operating entities.

Industry engagement

As part of the process of understanding what users want from the system that will ultimately replaces CHESS, ASX designed a series of working groups relating to the business requirements of users.  These working groups provided ASX with valuable input on what additional, or different services, users of CHESS would like ASX to provide.

Feedback from a consultation paper, released in September 2016 and a supplementary questionnaire that followed in December 2016, and bi-lateral meeting feedback from users was collated and categorised into the following six working groups as follows:

  1. Account structures and participant models

  2. Corporate actions

  3. Transfers and conversions

  4. Settlement enhancements

  5. Data storage, delivery and reporting

  6. 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.

The business requirements captured in the working groups will be a key input into determining the ‘Day 1’ functional scope of CHESS Replacement.

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:

  • A public consultation paper will be released in April 2018, outlining the proposed scope, implementation and migration plan

  • Further round tables with industry stakeholders, including issuers

  • Ongoing ISO 20022 Technical Committee meetings

  • 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

  • Decision on the proposed scope, implementation and migration plan end June 2018

While ASX will keep customers and industry stakeholders updated throughout the project, there will be times where greater engagement will be important to ensure the new system is developed and tested in a way that meets the needs of the market and is implemented smoothly. ASX will notify customers and industry stakeholders when this is required.

If you would like to be added to ASX's contact list for this project, please email ASX.

Market Consultation

In September 2016, ASX commenced consultation on the replacement of CHESS with the release of the consultation paper. The objective of the consultation paper was to:

  • Provide the market with an update on ASX’s evaluation of distributed ledger technology (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

 Download Consultation paper

The deadline for submission of responses was 28 October 2016.

ASX received 36 written submissions, including 23 that were provided on a confidential basis.  The submissions provided on a non‑confidential basis are available below.

ASX provides its response to the consultation paper on the business requirements for the replacement of CHESS.

Download Public Consultation Feedback Summary

Supplementary Business Requirements Questionnaire - ASX Replacement of CHESS:

On 22 December 2016, ASX released a Supplementary Business Requirements Questionnaire seeking additional information from stakeholders.

Download Supplementary Questionnaire

The deadline for submission of responses to the questionnaire was 14 February 2017.

Webinars

ASX will provide regular quarterly 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.

Webinar date (Sydney time) Registration link Webinar recording Presentation
2.00pm Thursday 30 March 2017 closed 30 March 2017 Webinar recording (wmv)* 30 March 2017 Presentation slides
2.00pm Thursday 6 July 2017 closed 6 July 2017 Webinar recording (wmv)* 6 July 2017 Presentation slides
2.00pm Thursday 28 September 2017 closed 28 September 2017 Webinar recording (wmv)* 28 September 2017 Presentation slides
3.00pm Thursday 14 December 2017 closed 14 December 2017 Webinar recording 14 December 2017 Presentation slides

*note, the webinar recordings are large files - about 160MB

ASX has prepared a document with tips on how to set up your PC for the optimal webinar experience. Please note this document has been updated effective December 2017:

Webinar tips

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 Committee has met regularly from December 2016 with invitations distributed by ASX.  The meeting schedule and documents are provided below.

Meeting Date and Time* Meeting agenda and attendees Meeting documents Meeting minutes
 24 September 2014     Meeting Minutes
Tuesday 13 December 2016, 3.30pm Meeting agenda Meeting presentation Meeting Minutes
Tuesday 7 February 2017, 3.00pm Meeting agenda Meeting presentation
SWIFT ISO 20022 overview
Meeting Minutes
Tuesday 14 March 2017, 3.00pm Meeting agenda

Meeting presentation

SWIFT MyStandards overview

Meeting Minutes
Tuesday 2 May 2017, 3.00pm Meeting agenda Meeting presentation Meeting Minutes
Tuesday 6 June 2017, 3.00pm Meeting agenda Meeting presentation Meeting Minutes
Tuesday 18 July 2017, 3.00pm Meeting agenda Meeting presentation Meeting Minutes
Tuesday 22 August 2017, 3.00pm Meeting agenda Meeting presentation Meeting Minutes
Tuesday 10 October 2017, 3.00pm Meeting agenda Meeting presentation Meeting Minutes
Tuesday 21 November 2017, 3.00pm Meeting agenda Meeting presentation Meeting Minutes
Tuesday 6 February 2018, 3.00pm Meeting agenda Meeting presentation Meeting Minutes
Tuesday 17 April 2018, 3.00pm Meeting agenda Meeting presentation  
Tuesday 22 May 2018, 3.00pm      
Tuesday 26 June 2018, 3.00pm      
Tuesday 31 July 2018, 3.00pm      
Tuesday 4 September 2018, 3.00pm      
Tuesday 9 October 2018, 3.00pm      
Tuesday 27 November 2018, 3.00pm      

*Sydney time

If you have any questions about the Committee please contact ASX at CHESSReplacement@asx.com.au

Summary of MyStandards comments and ASX responses on draft usage guidelines (updated 6 February 2018).

Resource material on ISO 20022 and related standards

Request your electronic copy of the booklet "ISO 20022 for Dummies" here.  You will be asked for name, company and contact information. Please enter "ASX CHESS Replacement on ISO 20022" for the question about the ISO 20022 initiative you are interested in.  The booklet will appear in a browser. You can download a PDF copy by clicking on the PDF icon in the bottom right hand corner of the screen.
ISO 20022 Harmonisation

Details on the SWIFT-led industry program to ensure a cost effective and seamless adoption of ISO 20022 by Market Infrastructures and their communities - available here.

Information Paper on ISO 20022 Implementation Strategies published July 2017, including a case study on the Australian Securities Exchange CHESS Replacement project.

ISO 20022 web site Information about ISO 20022, business domains, catalogue of messages, external code sets and news here.
Market Identifier codes (MIC) Codes for exchanges and market identification (MIC) issued per ISO 10383. The latest list is published here.

Project Timeline

ASX's pathway for the replacement of CHESS is outlined below.

Milestones Timeline

Develop a prototype platform using DLT technology

January 2016 – July 2016

Formal gathering of business requirements for a replacement system – to perform all current core functions of CHESS, with limited introduction of new features initially

Build out the prototype to an ‘industrial scale' platform using DLT technology

Commenced August 2016

End-2017

Key decision point: commitment to implement DLT or alternative technology for the purpose of replacing CHESS

December 2017

Implement replacement system

Following the technology decision in December 2017, ASX will provide further information on the implementation schedule

Investigate opportunities for leveraging technology to further increase operational efficiency

Ongoing consultation with stakeholders

Distributed Ledger Technology solution

ASX will adopt distributed ledger technology for the replacement of CHESS.

Click here for more information

Frequently asked questions

 

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

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 the bitcoin or any cryptocurrency in any part of its investigation of the blockchain.

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 will be provided as part of a consultation paper to be released in April 2018.  A final decision on the scope and timeline to implement is expected to be announced end June 2018, after market consultation.   Current CHESS users should plan to allocate some resources for consultation review in the first half of 2018, and assessment of future resourcing requirements.

What new services will be provided by the new system?

Any new CHESS services will only be determined after public consultation in Q2 2018, but it will continue to provide the core functionality and services that are currently provided, and potentially, some new services, as identified by the CHESS stakeholder engagement working groups.

 

What existing services will not be provided by the new system?

The decommissioning of any existing services will be determined after public consultation in Q2 2018.

How will the market be involved?

ASX will continue to engage with all stakeholders throughout the lifecycle of the project.  The next stage will be a market consultation exercise in Q2 2018.  ASX will also continue to meet with stakeholders either bilaterally, or convene working groups, on an ‘as needs’ basis.

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.

Contact us

You can contact the ASX CHESS Replacement project team on the following email address:

ASX CHESS Replacement

Distributed Ledger Technology

Accelerateacceler8 is the innovation space where ASX and Digital Asset are developing a distributed ledger technology (DLT) base platform, sometimes called blockchain, for the Australian equity market.