ASX completes blockchain trading platform prototype

The ASX has completed a prototype post-trade solution using blockchain technology, and is looking to make a final decision on whether to implement it at the end of 2017.
Written by Corinne Reichert, Contributor

The Australian Securities Exchange (ASX) has said that its blockchain initiative is on track for a final decision in the second half of 2017, with the prototype complete and the organisation now moving to building an "industrial-strength solution" to use as its equity settlement and clearing platform.

Announced during the ASX's AGM [PDF], ASX CEO Dominic Stevens said blockchain would replace the legacy Clearing House Electronic Subregister System (CHESS) platform as a more efficient mechanism.

"ASX is investigating new technology for the clearing and settlement of equities. This distributed ledger technology (or DLT) is based on the blockchain concept and has the ability to significantly improve the efficiency of clearing and settlement -- not only for ASX, but for our customers as well," Stevens said.

"We have successfully completed the distributed ledger prototyping stage and have moved on to building an industrial-strength solution that could be used to replace CHESS, our existing cash equities clearing, settlement, and sub-registry system.

"At the back end of calendar year 2017, we will be in a position to announce whether this will indeed replace CHESS."

Stevens added that the ASX "believes strongly in the potential of DLT", and explained that it would be deployed on a private network.

"When we talk about using DLT, we mean a new system that operates on a private network with security parameters that are at least as good, if not better, as today, where all participants are known and appropriately licensed to participate, but where a new type of underlying technology is used that enables customers to verify trades and other information, and where they have access to single source of truth on which they can rely," the chief executive said.

The ASX is undergoing consultation with its customers on the matter, with chairman Rick Holliday-Smith saying it is assessing opportunities with its partner Digital Asset Holdings on how blockchain can be adopted within financial markets.

"In March 2016, the government provided clarity about the medium-term market structure for cash market equities clearing," Smith explained.

"This enabled ASX to continue investing in infrastructure that meets global industry standards, and provides opportunities for productivity gains and innovation. This includes the development of distributed ledger technology -- or blockchain -- as a possible replacement for CHESS."

The ASX had announced in June that it was building a new post-trade solution using blockchain technology, asking for market feedback. This followed the ASX enlisting US-based firm Digital Asset at the start of the year to help it develop blockchain solutions for the equity market.

The organisation has been planning to replace or upgrade its trading and post-trade platforms for over a year.

According to Peter Hiom, deputy CEO of the ASX, implementing blockchain within Australia's financial markets will strengthen their global competitiveness.

"We believe the potential of the technology to improve post-trade efficiency and reduce costs is genuine. Our market is a complex organism, and there is a terrific opportunity for us to simplify how it works," Hiom said in June.

"In doing so, we can unlock a new era of collaboration and innovation."

Earlier this month, the Sydney Stock Exchange (SSX) similarly announced a project that would see it instantly settle trades using blockchain technology with the help of Sydney-based Bit Trade Labs.

"I've always been amazed that I can trade in the blink of an eye, in a millisecond on some exchanges. However, the clearing and settlement process can take between two and 30 days depending on what asset class you're trading," SSX director of market development Loretta Joseph said.

"It is our hope that we can lead to set policy recommendations that the government can adopt in order to facilitate blockchain-based innovations."

Australia's incumbent telecommunications carrier last week said it is experimenting with a combination of blockchain and biometric security for its Internet of Things (IoT) smart home offerings.

Telstra carried out successful tamper-detection testing on its ADSL gateways and several IoT devices for the home, including the switches and cameras, according to principal security expert Katherine Robins, integrating biometrics into the system for added security through identity verification.

Robins said the use of blockchain makes security across IoT devices more efficient and cost effective for organisations.

Australia Post has also suggested using blockchain for e-voting; in a submission to the Victorian Electoral Matters Committee, it said community expectations are driving the push towards digital voting, and that it would be looking to put its prior work with blockchain to use.

Like Robins, Adamson said using blockchain would provide a tamper-proof solution.

The federal government has pledged to remove the double tax treatment for digital currencies including bitcoin, which is facilitated by the underlying blockchain platform.

Several government agencies including the Department of Treasury are also examining alongside Data 61 what blockchain technology could mean if adopted by government and industry.

The International Organization for Standardization (ISO) approved Standards Australia's proposal for new international standards on blockchain earlier this year, with Australia set to manage the secretariat of an international technical committee for the development of blockchain standards.

Joining Australia on the technical committee are 35 ISO member bodies including Germany, the United States, the United Kingdom, France, Canada, Estonia, Japan, and South Korea.

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