The Australian Securities Exchange (ASX) had scheduled to launch its blockchain clearing and settlement system CHESS in April 2021. Because of COVID-19, the ASX said in March that it would consult this month about delaying the CHESS rollout. But several market participants, particularly share registrars, have resisted the platform over concerns that it encroaches on their turf. Yesterday the Financial Times (FT) reported that share registrar Computershare was lobbying for a two year delay in the ASX distributed ledger technology (DLT) launch.
The FT stated that: “Several ASX clients expressed concerns to the FT that the exchange could use the tech overhaul to extend its dominance in clearing and settlement into other markets, including share registry services.”
More than a year ago, we reported that the CHESS system was the subject of perhaps the first competition complaint relating to blockchain. We believe this is the first of many because the nature of blockchain platforms is they often remove the need for intermediaries. The latest rumblings sound similar to earlier ones. The concern is that the CHESS DLT platform’s functionality may overlap with some of the current share registrars’ services. That’s because transaction data will be available on the DLT. And concerns about increased costs have been raised again.
Last year deputy CEO Peter Hiom made clear that “we will not mandate the provision of any extra users’ data nor will we be increasing fees to pay for the CHESS replacement project.” In a factsheet for issuers published this week, the ASX says, “ASX fees for like-for-like services will not change. ASX is not recovering the costs of CHESS replacement by charging issuers more.” Elsewhere it explains the costs are covered by its capital expenditure budget.
The same document also states the CHESS replacement will not remove the need for registrars. “Share registry services will continue to be available and play an important role with issuers. Several share registries are already working with us to enhance their offering to issuers using distributed ledger technology.” When any technology solution evolves, basic functionality becomes commoditized, so there’s a need to offer added value services.
Apart from extensive consultations, and publishing numerous technical updates, the ASX has already made a significant accommodation to market participants. To reap the full benefit of DLT, organizations would run DLT nodes. However, this might be too big a requirement, so instead, participants can communicate in more conventional ways using messaging standards such as ISO 20022 via AMQP and SWIFT. DLT access is free for three years, but messaging will be charged.
The platform was developed by Digital Asset and makes extensive use of its DAML smart contract language. ASX has made an investment of $30.9 million in Digital Asset, which has raised $150 million to date. Digital Asset partner VMWare was brought into the team more recently and the blockchain has been switched from Digital Asset’s ledger to VMWare Blockchain using DAML.
Because the ASX is the market operator or central clearing party, only the ASX can write to the ledger for the initial solution. However, future applications not requiring a central party will be distributed.
Given consultations about the launch timing started this month, it shouldn’t be too long before the ASX announces its new rollout schedule.