- Australia’s market regulator, ASIC, has sued the operator of the nation’s largest stock exchange, ASX Ltd., for providing misleading information regarding the progress of its blockchain-based replacement to its aging CHESS settlement system.
- ASIC alleges that comments from ASX in February 2022 that its new system was “progressing well” were deceptive. Development of the system was abandoned in November 2022.
- ASIC has not determined what penalty it will pursue against ASX, but it has been reported the maximum penalty could exceed AU$500 million.
The Australian Securities and Investments Commission (ASIC) announced yesterday that it is suing the Australian Securities Exchange Ltd (ASX) for misleading statements the exchange operator made regarding its now abandoned plan for a blockchain-based replacement to its Clearing House Electronic Subregister System (CHESS).
ASIC alleges that statements made by ASX in February 2022 that the project was “progressing well” and was on track to launch in April of 2023 were misleading and that the project was in fact in shambles at the time of the announcement.
The project was eventually scrapped entirely in November of 2022, after a review by consulting firm Accenture identified “significant challenges” with the system’s design resulting in a AU$250 million write-down of the company’s assets.
Related: ASX Scraps $250 Million Blockchain-Based CHESS Project
Legal Case Follows Years of Problems and Delays
First conceived in 2016, with a launch initially planned for 2020, ASX’s new blockchain-based settlement system was intended to replace the ASX’s aging CHESS infrastructure—which is now 30 years old. However, the project was riddled with delays and problems since day one.
ASIC alleges that in February 2022, when ASX announced the project was “progressing well”, it was actually still beset by a host of problems and that these comments were “misleading and deceptive”. ASIC stated: “…the project was not tracking to plan and ASX did not have any reasonable basis to imply the project was on track to meet future milestones.”
ASIC Chair Joe Longo said these misleading comments from Australia’s largest stock market operator could potentially undermine confidence in the nation’s financial markets and must be seen as a failure of ASX’s senior leadership:
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.
Joe Longo, ASIC ChairLongo added that given its crucially important role in Australian financial markets, failures like this by the ASX have potentially huge consequences:
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.
Joe Longo, ASIC ChairASIC hasn’t yet determined what penalties it will pursue against ASX, but the Australian Financial Review has reported that the maximum penalty could be in excess of AU$500 million.
ASX Responds, Says It Cooperated Fully with Investigation
In response to ASIC’s allegations the ASX released a statement in which it acknowledged the charges against it—notably it didn’t deny the allegations or offer a defence.
Related: ASX Approves Its First Ever Bitcoin Spot ETF, VanEck’s Product Set Launch This Week
Helen Lofthouse, ASX’s Managing Director and CEO commented on the case saying the company has cooperated with the regulator and is now reviewing the allegations:
We recognise the significance and serious nature of these allegations. We cooperated fully with ASIC’s investigation and are now carefully reviewing and considering the allegations.
Helen Lofthouse, ASX Managing Director and CEOASX says it will continue to keep the market updated as new information on the case becomes available in accordance with its continuous disclosure obligations.
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