The Australia Stock Exchange has come under withering criticism from its regulators for failures of corporate governance that have left it, and the entire Australian equities market, at risk of failures in the ASX’s post-trade systems.
Governance failures plagued the Australia Stock Exchange’s ambitious effort to replace its clearing and settlement system, known as CHESS, with a distributed-ledger technology (DLT, aka, blockchain). The ASX has since changed tack, hired a new vendor with a different scope, and is now embarked on a new replacement strategy.
Sources tell DigFin that these efforts have not been matched by a change in the ASX’s governance or the way its board of directors functions. As this story came out, the Reserve Bank of Australia and the Australian Securities and Investments Commission (ASIC) sent the ASX a letter, dated 28 March, accusing it of major operational failures and breaching its statutory obligations.
The RBA is taking the extraordinary step of downgrading ASX Clear and ASX Settlement’s compliance with operational risk standards to ‘not observed’, while ASIC is now undertaking a technical review of CHESS.
Sources had told DigFin they were skeptical that the ASX had changed its governance following its DLT debacle, or was just ticking compliance boxes to get on with its CHESS replacement with limited outside scrutiny. It now appears those critics were right.
Such an approach could be construed as misstating material information. That is in fact what the Australian Securities and Investment Commission (ASIC), the securities regulator, accuses the ASX of having done: in August 2024, ASIC sued the ASX after a long investigation for allegedly misleading statements regarding the status of its original CHESS replacement plans. The case remains in Federal Court.
That wasn’t the end of matters: CHESS suffered an outage on December 20, 2024.
The seriousness of that outage, and the ASX’s lackluster response, triggered the March 2025 letter from RBA and ASIC. The letter notes that the ASX Group is a monopoly provider of clearing and settlement in Australian cash equities, and is obliged to ensure these services are always available. The recent spate of failures puts the entire market at risk, the regulators said.
Recap: replacing CHESS 1.0
The ASX is Australia’s most important financial institution, but it is also considered an innovator, certainly in Asia Pacific, among stock exchanges and providers of market infrastructure. Or at least, it used to be. For example, its CHESS system represents the first time a stock exchange dematerialized, so that all shares were represented electronically instead of on paper.
It was in that spirit that the ASX pursued a CHESS replacement using blockchain technology – a gambit that badly misfired. Its experience as it now grapples with a different approach is worth evaluating for any large operator facing thorny technology-related decisions.
In 2017, the ASX sought a bold solution to its aging CHESS platform by hiring Digital Asset Holding to design a replacement using elements of distributed-ledger technology. (Then-ASX deputy CEO Peter Hiom sat on the board of Digital Asset and the ASX acquired a 5 percent stake in the startup.) This proved unpopular with local market participants. Some of them feared being disintermediated by the new technology. Most complained about the high costs required to upgrade their own systems to integrate with the new CHESS.
The ASX might have overcome such resistance had its replacement actually worked. It did not. The first tests of the new system took place in April 2019. An early red flag was that, in August 2019, the ASX added a second vendor, VMware, to build the ledger while Digital Asset worked on coding applications and smart contracts. In March 2020, the ASX announced it had to push back its original target date to go live, from April 2021 to 2023.
On February 3, 2022, the ASX’s audit and risk committee was told by the project team of ongoing problems. A week later, the ASX’s half-year results said the replacement remained on track and was “progressing well”. The next month, the ASX announced further delays; by November, it had been forced to shelve the project. It wrote down A$250 million. Market participants also had to write off their investments into integrating with the proposed DLT settlement system.
ASIC says it then fined the ASX over A$1 million in 2024 for breaching market-integrity rules. It has since launched its lawsuit over allegedly misleading language in that 2022 half-year financial statement.
This was before the December 20, 2024 outage.
New vendor, new process?
That is all now background; the story has been well documented. The ASX appointed a new CEO, Helen Lofthouse, who scrapped the CHESS replacement project with Digital Asset and VMware.
ASIC and the Reserve Bank of Australia insisted on governance changes, which included the establishment of the Cash Equities and Clearing and Settlement Advisory Group. This is comprised of independent experts. The Advisory Group sits above ASX’s own latticework of committees: the board’s audit committee, which in turn oversees a technical committee for the CHESS replacement project, and a separate, more commercially minded committee called the ASX Business Committee. The ASX also for the first time appointed an independent non-executive director to chair the business committee.
Under this renovated governance structure, in 2023 the ASX signed a new vendor, Tata Consulting Services, to deliver a CHESS replacement.
That decision has been criticized by sources DigFin spoke with. These people are experienced market operators, consultants, and ex-regulators in Australia. They have specific concerns about the TCS appointment, which also pose a more fundamental question about the ASX’s governance.
Critics say TCS’s replacement solution is too slow, too expensive, and that the team is too inexperienced with capital-markets infrastructure. Cheaper, faster, and proven solutions exist, so why did ASX make this decision? Given the potential risks TCS poses – as its timeline will leave CHESS vulnerable to systems outages for several more years – it leads these critics to ask if the ASX’s board has seriously addressed the governance failures that marked its initial approach to replacing CHESS.
An ASX spokesperson told DigFin the choice of TCS was based on input from the CHESS Replacement Technical Committee, the ASX Business Committee, and the ASIC-mandated Advisory Group. The exchange also appointed Accenture as solutions integrator.
CEO Lofthouse said in a press release at the time, “We significantly increased engagement during 2023 and the selected product, implementation approach and scope reflect discussion and feedback from various forums.”
Why Tata?
TCS will deliver its solutions in a phased manner. The first phase is clearing, due in 2026. The ASX budgeted A$105 million for this over a multi-year period. The second phase addresses settlement and the sub-register; the delivery date is targeted for 2029, and the exchange has budgeted a $125 million spend.
The selection of TCS has some sources in capital markets scratching their heads. They note that TCS is well known for banking products. It is a newcomer to capital markets. Nasdaq, Millennium (an offshoot of the London Stock Exchange) and Vermiculus (founded by ex-OMX execs) have proven systems for clearing securities depositories and settlement. These can be implemented in a period of months, not years, and at a fraction of the cost budgeted by the ASX.
One source speculates that board member David Curran, the independent director chairing the technology committee, and ASX chief information officer Tim Whiteley are familiar with TCS from their days working at Westpac.
The ASX spokesperson noted that TCS now serves exchanges in Finland, South Africa, New Zealand, and now Canada.
One of DigFin’s sources for this story also applauded the TCS choice: “Tata has a great global reputation. This is cutting-edge stuff. It’s hard to find an expert who has done this a number of times.”
However, sources say TCS’s work for the Toronto Exchange Group is four years late and significantly over budget. A spokesperson at TMX told DigFin the group expects to go live in the second quarter of 2025. They acknowledge delays:
“The timing of this complex project, which includes the replacement of certain legacy systems related to clearing and settlement, as well as entitlement payment, shifted over time due to the impact of world events, including the Covid-19 pandemic, and to enable an efficient transition to T+1 settlement for our stakeholders across Canada’s capital markets industry.” (Emphasis added by DigFin.) TMX says it expects to spend up to C$150 million on modernizing its central depository system.
Critics doubt the board has asked its committees to ask other exchanges for a reference.
Sub-registry: Australian differentiator
Another reason why the ASX may have selected TCS is because its CHESS overhaul requires specialist coding that may have made any off-the-shelf offer require additional work.
That’s because CHESS has an unusual setup, which is spelled out in its full name: Clearing House Electronic Sub-register System. The core of the exchange is maintaining a register of who owns which securities. Most exchanges recognize only names of members, the broker-dealers that represent retail customers on an omnibus basis.
The ASX, in contrast, recognizes individual stockholders. Instead of relying on brokers to run their own sub-registries identifying their own customers, the ASX keeps track of these legal titles directly. This adds complexity that would require an off-the-shelf solution to be modified.
Although more complex, industry sources say keeping the exchange’s sub-registry capability is important to its competitiveness. Yes, it could simplify things and embrace a standard CSD custody model. But the sub-register also removes the need for custodial intermediaries, thus reducing frictions in processing trades and in counterparty risk. It’s also a differentiator and Australian investors expect to see their own name on the exchange’s registry.
This is also one reason why the ASX initially considered a DLT replacement. “Tokenization, with direct-name transactions versus custodial intermediaries, is the way the world is going,” said one source.
Even so, critics believe a vendor with a proven track record in capital-market technology could deliver the ASX with a solution in much shorter time. Indeed, TCS’s short track record in capital markets makes coding a sub-registry even more challenging, they reckon. DigFin contacted TCS executives in the region for comment but did not receive a response.
Drawn-out risk
“With the first staged implementation scheduled for 2026, that tells me [TCS] is writing this from scratch,” said Philip Galvin, former head of the Syndey Futures Exchange who made a quixotic bid to join the ASX board in 2023. (He also briefly served at ASX after it acquired the Sydney Futures Exchange.)
Critics such as Galvin are concerned because CHESS is now outdated and prone to outages. It sometimes failed to handle spikes in trading volumes during the spring of 2020, when the Covid pandemic struck.
The outages aren’t just happening in times of acute market stress: CHESS went down one day in December 2025.
“The ASX has just gone through a failure,” a consultant told DigFin. “They should have just bought Nasdaq. They can’t afford the reputational failure to deliver if there’s a crisis and they ignored taking a proven solution.”
The selection of a vendor to modernize CHESS is obviously a complex, expensive and risky endeavor. How did the ASX come to choose TCS, accepting a long delivery schedule at high cost, in the wake of an acknowledged disaster?
Corporate governance in the spotlight
This is where governance is at the fore. Corporate governance and managing risk are the responsibility of the board of directors, who are meant to know to ask challenging questions of management.
In the wake of the DLT fiasco, the ASX and its regulators took some steps. ASIC and the RBA set up the Advisory Group, chaired by Alan Cameron, a former ASIC chair. This was largely imposed on the ASX, sources say. Internally, the ASX named Paul Rayson, former managing director of retail brokerage CommSec, as the first independent chair of its business committee.
But committees and reports are one thing; taking them seriously is another.
Galvin told DigFin: “The ASX board has no concept of why organizations fail, because of their governance…if board directors don’t go down into the company’s organization and operations, they can’t respond to changes. If a crash comes it catches you by surprise. That includes major tech upgrades.”
He notes only one director on the ASX board (Curran) has a technology background.
After the TCS decision was announced, Galvin and another IT professional, Bob Caisley, formerly of Nasdaq, ran for the ASX board. They were only able to convince about 3 percent of shareholders to back them.
Sources also say the new governance frameworks aren’t impacting the way the ASX board makes decisions.
The Advisory Group
Someone with knowledge of the Advisory Group’s workings told DigFin the ASX did consider pitches from up to four vendors, but there was no industry engagement. He says this is the ASX’s prerogative – it’s their business – but nor was there a consulting of the Advisory Group’s opinion.
No one has been able to explain to DigFin why the ASX chose TCS.
The Advisory Group has only one mandate: to ensure the ASX has a process in place to select a CHESS replacement vendor. It has no input or veto. For example, its members were not able to tell the ASX’s technology committee to ask the TMX or other TCS clients about whether they were receiving solutions on time, to spec.
“It doesn’t appear the ASX has really had any great learnings for corporate governance from its previous failures,” this person told DigFin. The ASX board calls its new approach a refresh, but the process appears to be similar, and he questions the exchange’s internal capabilities to manage such a complicated project.
As a result, TCS’s final deliverable will probably be a lot like the current version of CHESS, but updated enough to handle greater volumes.
If there is a severe outage, market participants and the Australian media will demand to know what happened to oversight. Once they realize the Advisory Group is mostly toothless, the reputational damage could work its way up the chain to ASIC.
The regulator declined to respond to this point. This was before the March 28 letter from RBA and ASIC was issued to the ASX.
Its spokeperson told DigFin: “ASIC expects the ASX to implement a safe and reliable CHESS replacement system that meets all regulatory requirements and that this work is delivered in an efficient and timely manner.”
Paths not taken
But reputational damage is already being done. One person interviewed by DigFin expressed dismay at the way the industry and the local media piled on the ASX when it was forced to shelve its DLT replacement solution.
“The new leadership did best possible job given the circumstances,” he said. “There was a huge over-reaction when the first venture failed. I’m concerned the ASX is being punished for taking risks and embracing new technologies.”
He doesn’t see the Advisory Council as too weak; he sees it as too strong an intervention that could put ASIC at reputational risk.
Indeed, it may because of the relentless criticism that the ASX has agreed to such a cautious, drawn-out timeline for a project that, once fully implemented in the early 2030s, will leave it with a similar CHESS. This view doesn’t explain, though, why the ASX didn’t go with a more obvious choice of vendor.
If ASX was overly ambitious about DLT, it may now be too conservative; instead of embracing blockchain, it should be looking at artificial intelligence.
Galvin says generative AI is now taking on more coding functions. The ASX could hire enough experts to develop their own CHESS replacement software, by relying on AI. This could deliver a replacement faster and cheaper than any vendor. More importantly, it would allow the ASX to own its own software intellectual property, thus allowing the exchange to retain control over its systems, rather than become dependent on a third-party vendor. “IP is the cornerstone to monetization,” he said. “By 2029, AI will be the best coder in the world.”
While other sources didn’t endorse this view, they do believe that by the time TCS delivers its solution to the ASX, it will be out of date.
NOTE: This story was updated on 1 April in light of DigFin learning of the March 28 RBA/ASIC letter to the ASX.
