ASX to develop blockchain for Australian equity market
The Australian Stock Exchange (ASX) has announced that US-based firm Digital Asset will help it develop solutions for the Australian equity market using blockchain technology, the underlying system that facilitates transactions such as bitcoin trading.
The announcement is part of the ASX's plans, which it revealed last February, to replace or upgrade all of its main trading and post-trade platforms.
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Phase one of the program will involve replacing the ASX's existing trading and risk management system, which is expected to run to the end of 2016. Meanwhile, phase two will focus on the revamp of the ASX's post-grade services, including clearing and settlement of the cash equities market.
Under the contract, Digital Asset will design a new post-trade solution for the Australian equity market. According to the ASX, the initial six to 12 months of the work will be used to develop a blockchain solution that will demonstrate the benefits for a range of users including investors, listed companies, and intermediaries.
The ASX said it will engage with regulators and government agencies to assess the benefits the solution could deliver, and to see if it would meet regulatory, operational, and security standards of Australia's financial markets.
"The standards that apply to regulated financial markets mean that the design of a solution will differ from the publicly available blockchain. The architecture will be based on a private network whereby all parties that participate will be permissioned to do so -- as they are today when they connect to CHESS (Clearing House Electronic Subregister System)," the ASX said in a statement.
The ASX also reassured that during the development, the CHESS, the computer system that the ASX uses to record shareholdings and manage settlements of share transactions, will continue to operate as normal.
"This will allow all stakeholders to assess the benefits and implications before a final decision is made on Australia's post-trade technology in 2017," the ASX said.
The emergence of blockchain technology was a topic of discussion that was raised by the Australian Securities and Investment Commission (ASIC) last September. At the time, Greg Medcraft, chairman of ASIC, highlighted if blockchain technology takes off it has the potential of changing the existing financial system in four ways: Automate the entire buy and sell process, including removing the waiting time to settle trades; eliminate the need for third-party intermediaries between buyers and sellers; reduce transaction costs; and improve access to cross-border trading.
Similar points have been made by Commonwealth Bank of Australia's CIO David Whiteing, who suggested blockchain could "change the way we view not just payments, but business processes".
"We also believe it will help and develop innovations we can't yet even think of," he said.
Similarly, at the beginning of this year, Adam Ryan, CEO of Australian e-procurement service provider Think, said blockchain is one of the most sound and secure transaction avenues, and is more than just a payment method for buying illicit goods via online marketplaces.
"What you're really doing with blockchain technology is enabling two parties to complete a transaction almost as efficiently as you possibly can because it's automated, processed by someone who doesn't really factor in overheads at the transaction cost, and it's almost infinitely scaled," he said.
"The transaction is like a lolly wrapper, it's used once then you throw it away."
In addition to this announcement, ASX, together with 12 other global financial services firms, including J.P. Morgan and Accenture have invested more than a total of $50 million in Digital Asset. This includes AU$14.9 million from ASX, giving the firm a 5 percent equity interest in Digital Asset, as well as the right to purchase further equity and appoint a director to the board.
"ASX believes that Australia can be a world leader in the development of innovative post-trade solutions. Our investment in Digital Asset represents a commitment to sizing the potential of Distributed Ledger Technology to reduce cost, risk and complexity for ASX's broad stakeholder base, including issuers, investors, intermediaries and regulators," said Elmer Funke Kupper, ASX managing director and CEO.
In April last year, the ASX launched its customer support centre, which ASX chief information officer Tim Thurman said at the time would allow the firm to provide end-to-end customer support to its clients in a more proactive, rather than reactive, way.