ASIC and RBA monitoring ASX's blockchain-based CHESS replacement project

The Australian Securities Securities Exchange (ASX) has been building the world's first, actual industrial-scale blockchain use case -- a new post-trade solution to replace its legacy Clearing House Electronic Subregister System (CHESS) platform, which has been running for around 25 years.

When delivering the organisation's financial results in February, ASX CEO Dominic Stevens said the system would be ready for industry-wide testing in July and that full-functionality should be expected come April 2021.

However, in March, the ASX announced it would revise the implementation timetable for replacing CHESS and consult with CHESS users as a result of the COVID-19 pandemic.

The ASX in June then said it would revise its target go-live date to April 2022.

The regulators involved in CHESS -- the Australian Securities and Investments Commission (ASIC) and the Reserve Bank of Australia (RBA) -- have this week set expectations of the project, as well as the exchange, in bringing the function to public use.

"The regulators expect ASX to replace CHESS as soon as this can be safely achieved by ASX and users of CHESS," the regulators wrote.

"In implementing the replacement, ASX should take into account CHESS user feedback … ASX is expected to demonstrate the readiness of the CHESS replacement system and will be required to provide supporting independent assurances to the regulators before migrating to the new system."

ASIC and RBA expect the ASX to provide independent assurances in demonstrating its readiness to migrate to the new system.

"Seeking independent assurances is also consistent with an enterprise risk management three-lines-of-defence model," they added. "At a minimum, the new system must meet requirements which CHESS meets today for system availability, resilience, recoverability, performance, and security."

ASX is also expected to achieve a significant uplift in intraday trade processing capacity and end-of-day processing performance in the new system.

"ASIC believes the Australian financial system requires contemporary CS infrastructure that is efficient, resilient, reliable, and scalable to meet existing and future needs of the market and participants," ASIC commissioner Cathie Armour added.

ASIC and the RBA said they would continue to closely supervise ASX's CHESS replacement program of change.

Speaking previously, ASX deputy CEO Peter Hiom said the revised timetable would provide additional time for the ongoing impact of the COVID-19 pandemic on all stakeholders, accommodates functionality changes requested by users, and offers a longer period for ASX and CHESS users to complete their respective development and readiness activities. 

"ASX has undertaken a comprehensive, risk-based approach to the replan of the CHESS replacement project.  We have listened to the diverse views of stakeholders and accommodated feedback on timing, user readiness and changes to functionality," Hiom said at the time.

"At its core, the new CHESS system will deliver existing services, new and enhanced functionality, high availability, reliability and performance, and will underpin Australia's financial markets for the next decade and beyond."

In wrapping up its consultation in August, the ASX said 91% of CHESS users claimed they would be able to meet the revised go-live date. The few exceptions that weren't able to confirm readiness asked the exchange for more information on particular issues, it said.

The ASX heard from 92% of the 96 CHESS users.

"While recognising there is still much for everyone to do, we are excited by the fact we are close to 100% complete on customer functionality and set to move into industry-wide testing in the coming months," Stevens said in August.

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