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Australia’s Biggest Stock Exchange “Increasingly Confident” of Blockchain Replacing CHESS

Last Updated March 4, 2021 5:00 PM
Samburaj Das
Last Updated March 4, 2021 5:00 PM

The chairman of Australia’s biggest stock exchange is bullish about blockchain technology replacing its existing post-trade settlement solution, CHESS.

The Australian Securities Exchange (ASX) is the arguably the world’s first major securities exchange operator to publicly express an interest in adopting blockchain technology. As CCN.com reported in 2015, ASX managing director at the time Elmer Funke Kupper underlined a blockchain-powered platform as a serious candidate to replace the ASX’s existing Clearing House Electronic Subregister System (CHESS). The decentralized technology was deemed as a “once in a 20-year opportunity” for a technological revamp, by the executive.

Come January 2016, the ASX had invested AUD$14.9 million for a 5% equity stake in New York-based blockchain startup Digital Asset. Digital Asset has since developed a blockchain platform that ASX said would “significantly simplify and speed-up post-trade processing.” The blockchain solution has been undergoing a lengthy trial alongside CHESS for nearly 20 months.

Despite some hurdles  along the way, it’s looking likely that the ASX will soon switch over to blockchain technology for its post-trade settlement process, a core operation that earns the ASX just under 10% of its annual revenue at AUD$55 million. In using the traditional and manual CHESS, the ASX has also become the world’s most profitable major stock exchange, with a profit forecast margin of 77% in 2017 compared to its closest challenger, the Hong Kong Exchange, with a forecast of 71%.

In other words, profit-minded investors are likely to insist on sticking with CHESS, but the ASX is moving forward.

Speaking to investors at the company’s annual general meeting this week, ASX Chairman Rick Holliday-Smith revealed:

We are increasingly confident that this technology will simplify how our marketplace works and should unlock a new era of efficiency and innovation.

Further, ASX CEO Dominic Stevens also revealed that the ASX had “given over 60 DLT (Distributed ledger technology) system demonstrations or CHESS replacement workshops to more than 110 companies and over 500 attendees from the global financial services industry.”

Underlining the potential of the Digital Asset-developed blockchain solution to deliver “real efficiency gains for the market” the CEO added:

All this ensures that ASX will be the best informed it can be about the specifications needed for new post-trade infrastructure for the equities market.

The ASX is set to make a decision about replacing CHESS with the blockchain platform in December.

Featured image from Shutterstock.