The Australian Securities and Investments Commission has launched civil proceedings in the Federal Court against the Australian Securities Exchange (ASX) over the exchange’s Clearing House Electronic Subregister System (CHESS) replacement project.
The proceedings follow a broad ranging investigation by ASIC into suspected contraventions of the ASIC Act 2001 and the Corporations Act 2001 in relation to the previous CHESS replacement project, which was paused in November 2022.
The ASX was planning to upgrade the original system, which was developed in the 1990s, with a more modern system aimed at increasing efficiency, flexibility, and security.
The bourse originally planned to use distributed ledger technology developer Digital Asset to complete the project, but it switched to Tata Consulting Services in November 2022, following eight years of development and delays.
The new system being developed by Tata Consulting is expected to be rolled out in two stages, with the clearing system slated for 2026, and the settlement and sub-register to follow in 2028 or 2029.
ASIC alleges that ASX contravened certain sections of the ASIC Act 2001 relating to misleading or deceptive conduct, and false or misleading representations by making statements to the market on 10 February 2022 in relation to the previous CHESS replacement project.
The regulator alleges statements made that the project remained “on-track for go-live” in April 2023 and was “progressing well” were misleading and deceptive because, at the time of the announcements, the project was not tracking to plan and the ASX did not have any reasonable basis to imply the project was on track to meet future milestones.
ASIC Chair Joe Longo said the ASX’s statements go to the “heart of trust in the integrity of our markets”.
“We believe this was a collective failure by the ASX Board and senior executives at the time,” he says.
“Companies and market participants rely on what the ASX says about its operations to make their own decisions and investments. We expect the ASX to be a place to list and invest with confidence. When the ASX falls short, it has wide ranging consequences across the market.”
Longo said ASX’s CHESS replacement is a technology project of fundamental significance, replacing critical national infrastructure crucial to the operation of the Australian economy.
“Its critical importance was all the more reason ASX needed to ensure it told the Australian public the truth about how the project was tracking and whether it would be completed on time,” he says.
“The delay and subsequent pause of the project in November 2022 caused significant cost to ASX and market participants who relied on assurances as to the progress of the project and scheduled go-live date.”
ASIC is seeking declarations, pecuniary penalties, an adverse publicity order, and costs against the ASX.
ASX Managing Director Helen Lofthouse says the ASX recognises the significance and serious nature of the proceedings.
“We cooperated fully with ASIC’s investigation and are now carefully reviewing and considering the allegations,” she says.
“We play a critical role at the centre of Australia’s financial markets, and continue to focus on supporting and delivering for customers.
“We are committed to taking ASX forward, and have made strong progress as an organisation over the past two years.”
ASIC is yet to determine the penalty it will seek for the alleged contraventions.
In early March 2024, ASIC announced ASX had paid a penalty of $1.05 million following an investigation into its compliance with the market integrity rules. More recently, ASIC took action against a ‘pump and dump’ scheme and attempted manipulation of commodities markets.
The ASX led the bottom performing stocks in the S&P/ASX 200 today (14 August), sliding as much as 4% to an intra-day low of $63.18 on the back of the news.
Write to Angela East at Mining.com.au
Images: ASX
