The Australian Stock Exchange (ASX) Limited has announced that it is building a blockchain as a replacement for its current platform for clearing and settlement of trades.
In an announcement today by Australia’s biggest stock exchange, the ASX has confirmed that it is developing a private blockchain with US-based firm Digital Asset as a post-trade solution for the Australian equity market.
The announcement also revealed that the ASX paid AUD $14.9 million for a 5% equity interest in Digital Asset Holdings (DAH), a fee that will also fund an initial phase of development of the private distributed ledger solution. Furthermore, the deal also includes the ASX for a warrant that will allow the Australian exchange to purchase further equity from DAH and appoint a director to the board of the blockchain startup.
Elmer Funke Kupper, managing director and CEO of ASX spoke about the need for new innovation in post-trade systems. If embraced, Australia would lead the way in adopting blockchain technology for large stock exchanges. He stated:
There has been very little innovation in the post-trade services that operate around the world for the better part of 20 years.
Rather than replace CHESS with a new version that is based on the same legacy processes that operate in the market today, we should aim to re-engineer and simplify those processes to deliver significant benefits to the users of the market.
The ASX currently uses the Clearing House Electronic Subregister System (CHESS) and the new distributed ledger will take place alongside the existing system during an initial phase of 6 to 12 months. A final decision following an assessment of the benefits and implications of blockchain technology will take place in 2017.
The media release notes that distributed ledger technology, pioneered by Bitcoin is likely to “significantly simplify and speed-up post-trade processing.” It also adds that ASX clients could see risk curtailed along with a reduction in administration and compliance costs. For investors, the biggest advantage is real-time settlement of equity transactions.
In a statement, Digital Asset CEO Blythe Masters said:
The work we have done with ASX to date indicates that Australia has a unique opportunity to be a world leader in the adoption of Distributed Ledger Technology.
We expect the solution that Digital Asset can deliver will bring significant benefits and exciting new business opportunities to ASX and the Australian market.
The ASX was always going to look to replacing its current system CHESS, with plants set to herald changes in Feb 2015. Blockchain technology was confirmed to be among the leading candidates to replace CHESS in October 2015, when Kupper claimed a “once in a 20-year opportunity” to engage in a complete overhaul of its current systems.
The same views were echoed in December last year by Kupper, who claimed “the timing is almost perfect,” for blockchain to make an “enormous difference”.
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