The Australian Stock Exchange (ASX) is facing further regulatory heat over its ill-fated bet on a now-binned blockchain clearing solution.
In an announcement last week, the ASX said the Australian Securities and Investments Commission (ASIC) was probing the exchange over “suspected contraventions” of two laws.
“ASIC will be investigating whether ASX Limited, ASX Clear Pty Limited, ASX Settlement Pty Limited and/or their directors and officers [breached certain legal obligations]… during the period 28 October 2020 to 28 March 2022, in relation to oversight of the [CHESS upgrade] program, and statements and disclosures made by or on behalf of ASX as to the status of the program,” the ASX release says.
The Australian bourse scratched its plan to replace the aging CHESS clearing and settlement system with a blockchain-based solution last November following a six-year technology spend that ultimately saw the exchange write-off A$250 million.
But while ASIC and other regulators have demanded the ASX produce a series of reports on the failure, the latest formal investigation could result in fines and other penalties for various corporate entities and directors.
Both regulators and financial industry participants took aim at the ASX over the CHESS disaster in an Australian federal parliamentary hearing in February with ASIC chair, Joe Longo, slamming the stock exchange operator over potential conflicts of interest.
“The ASX is a unique entity in the Australian economy: it is self-listed on its own exchange, it is a commercial entity that operates for profit for shareholders. But it is also an entity that cannot look solely to its own interests in conducting its affairs,” Longo said at the time.
”It has certain privileges, frankly, in the way it has historically evolved and in the way our current regulatory arrangement operate. So it must, in my view, take into account the public interest in all of its decision-making. It cannot look to its own interest.”
Marnie Reid, Computershare issuer services chief, told the Australian parliamentary committee that the proposed CHESS replacement could have seen the ASX muscle into other areas – such as paying dividends or running shareholder meetings – that fall outside its jurisdiction.
“ASX may have been using its powers to extend its monopoly into post-settlement activities that are beyond the clearing and settlement remit of its licence,” Reid said.
Meanwhile, committee chair, Deborah O’Neill, said at the February hearing that the ASX had failed to adequately supply further information requested last December.
“… we were underwhelmed by responses from the ASX, and the same culture seems to be continuing,” O’Neill said.
But the ASX has promised a positive approach to the most recent regulatory investigation.
“ASX takes its obligations very seriously and will cooperate fully with ASIC,” the release says.