Economy

ASX finally makes its move and swaps CHESS for blockchain

ASX finally makes its move and swaps CHESS for blockchain

The ASX said previously that the new CHESS trading platform will provide 24-hour OTC clearing and OTC client clearing enhancements that it expects will provide "contemporary" technology and additional functionality.

Australia's equity market the ASX has made a decision to replace its CHESS system to record changes in shareholding with distributed ledger technology found in blockchain.

The transition is expected to start next year, with the timing to be decided around the end of March. The cost of developing the blockchain-backed system wasn't disclosed. ASX will be the first primary exchange to migrate to Blockchain but other regulated exchanges are expected to follow suit.

It is touted that blockchain technology is a more efficient and less expensive way to track trades.

Several other exchanges have been experimenting with blockchain technology. The press release says that CHESS was world-leading when introduced in the 1990s, providing name-on-register functionality, electronic communications and removing paper share certificates.

In late 2016, Deutsche Bundesbank and Deutsche Börse presented a prototype for blockchain technology-based settlement of securities.

The ASX plans to replace this with technology developed by Digital Asset, a company founded only in 2014. The platform would synchronize and standardize the exchange's database of equity trades.

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Blythe Masters, Digital Asset CEO, said, "After so much hype surrounding distributed ledger technology, today's announcement delivers the first meaningful proof that the technology can live up to its potential".

Last year, Wall Street banks including JPMorgan and Citigroup Inc. successfully tested blockchain ledger technology on credit-default swaps.

Over the past year, the ASX conducted industry-wide consultation, including quarterly webinars with over 150 participants; performed demonstrations of the blockchain-based technology to 110 companies from global finance companies; held a series of engagement workshops; and arranged six business committee meetings to prepare the DLT solution.

The ASX Ltd [ASX:ASX] was in need of replacing their CHESS system, the system that records holdings, executes trades and settles them. ASX and DA have agreed to work exclusively on DLT in Australia and New Zealand.

The testing confirms ASX's confidence in the functional, capacity, security and resilience capabilities of DA's application of DLT to meet the needs of Australia's financial marketplace and maintain the highest regulatory and operational standards.

The trial saw ANZ and Westpac, in partnership with IBM and shopping centre operator Scentre Group, digitise the bank guarantee process used for commercial property leasing using the blockchain. It said Thursday it would exercise its right to take part in Digital Asset's recent fund raising, buying US$3.5 million in convertible notes.