Australian financial regulators have turned the screws further on the ASX in the wake of its back-office blockchain backdown, imposing a first-ever special reporting obligation on a market infrastructure provider.
Under orders published by the Australian Securities and Investments Commission (ASIC) last week, the ASX must “produce a special report on specified matters in relation to the current CHESS [clearing and settlement system]”.
Among a long list of items, the independent audit report (to be carried out by Ernst & Young) is required to detail how the ASX will manage the risks and ongoing maintenance of the decades-old CHESS system following the embarrassing blockchain replacement flop last month.
“This is the first time ASIC has used this delegated power against an operator of licensed market infrastructure for the purposes of auditing the support and maintenance of a clearing and settlement system,” the statement says.
In November this year, the ASX pulled the plug on the blockchain-based CHESS successor, writing off A$250 million after a more than five-year development effort.
Joe Longo, ASIC chair, said in the release the CHESS remains a “critical financial market infrastructure” for Australia.
“ASIC’s immediate priority is to ensure current CHESS continues to provide the level of service, reliability and resilience that is required,” Longo said. “This is important not just for industry but also for the Australian economy and investors.”
The Reserve Bank of Australia (RBA), which co-regulates the Australian exchange along with ASIC, also put the boot into the ASX via a supplementary ‘letter of expectations’. Both regulators issued a joint letter to the ASX last month.
RBA governor, Philip Lowe, said in the statement that the Australian central bank “expects the highest priority be given to ensuring the stability and resilience of the critical infrastructure supporting Australia’s cash equity markets”.
“This needs to be the focus for current CHESS as well as in rethinking the design and implementation of its replacement. The RBA also expects to see further uplift by ASX with respect to its governance arrangements,” Lowe said.
ASIC and the RBA “are prepared to bring to bear a range of regulatory options” to ensure the ASX clearing and settlement operations continue to function, the release says.
Also last week, the Securities and Exchange Commission (SEC) published a raft of proposals designed to shake-up US share-trading operations.
The SEC has called for new rules to enforce ‘best execution’ duties on brokers as well a requirement to treat retail investors on par with institutional clients in a move set to restrict the controversial ‘payment for order flow’ practices highlighted during the Gamestop trading halt last year.
Gary Gensler, SEC chair, said in the release: “Today’s markets are not as fair and competitive as possible for individual investors — everyday retail investors. This is in part because there isn’t a level playing field among different parts of the market: wholesalers, dark pools, and lit exchanges.
“Further, the markets have become increasingly hidden from view, especially for individual investors. These everyday individual investors don’t have the full benefit of various market participants competing to execute their marketable orders at the best price possible.”
The SEC proposal would enhance competition for retail stock-trading orders, Gensler said.