Australia’s corporate regulator, ASIC, has filed a lawsuit against the Australian Securities Exchange (ASX), accusing the market operator of mishandling the blockchain-based Clearing House Electronic Subregister System (CHESS) replacement project. The regulator announced the legal action on Wednesday.
The lawsuit alleges that ASX misled the market by claiming in early 2022 that the CHESS project was progressing as planned. However, within just six weeks, ASX admitted that the project was facing delays. An independent review by Accenture later that year identified significant scalability issues with the blockchain technology underlying the new system, leading to the project’s suspension and a $250 million write-off.
The CHESS system, introduced in 1994, is used by the ASX to record share ownership and process trades. The ASX began developing a replacement system in 2015 and incorporated blockchain technology in 2017. Despite numerous setbacks, ASX asserted in February 2022 that the new system would be operational by 2023.
ASIC alleges that ASX was aware of the delays but continued to publicly assert that the project was on track, creating a misleading impression about its progress.
ASIC Chair Criticizes ASX for Erosion of Market Trust
ASIC Chair Joe Longo criticized ASX for undermining trust in market integrity. “ASX’s statements strike at the heart of trust in our markets,” Longo stated. “This appears to be a collective failure by the ASX Board and senior executives. Companies and market participants depend on ASX for accurate information to guide their decisions and investments. When ASX fails to meet these expectations, it has far-reaching consequences across the market.”
Longo emphasized that the delay and eventual halt of the project in November 2022 caused significant financial losses for both the ASX and investors who had relied on the company’s assurances about the project’s timeline and progress.
ASX Responds to ASIC’s Legal Action
ASX CEO Helen Lofthouse has acknowledged the seriousness of ASIC’s lawsuit. She stated that ASX is fully cooperating with the regulator’s investigation and is currently reviewing the allegations.
Though ASIC has not yet disclosed the specific penalties it seeks, it is notable that ASX previously paid a fine of A$1.05 million (approximately $695,415) in March 2024 for separate breaches of market integrity rules.
