ASX no longer Bullish on Blockchain Tech

ASX no longer Bullish on Blockchain Tech

The Australian Stock Exchange more commonly referred to as the ASX currently utilises the CHESS system which stands for Clearing House Electronic Subregister System which records shareholdings and manages the settlements of share transactions. It is a popular system used by brokers and trading parties to settle and record the trades they undertake and the universal system is required by use for all that trade on the ASX.

Once a buyer and seller agree to a trade the system will facilitate the trade which takes around 2 days to process and transfer ownership. CHESS handles both the money and asset transfer while also creating a record that is secured and used to confirm ownership of asset and record of sale.

There is an alternative available called issuer Sponsored Subregister however, these records are maintained by the companies issuing the shares.

To participate in CHESS users must register for a Holder Identification Number (HIN) which requires a sponsor such as a bank or investment broker.

There are many benefits to using CHESS one of the main benefits is that it enables traders to hold all their trades, shares and investments on the one system instead of on multiple Issuer Sponsored Subregisters. Creating an easier way of tracking your assets and reporting at the end of each financial year.

In some ways it is similar to the current emerging Block Chain technology and a HIN is similar to your wallet address.

ASX dumps CHESS for Blockchain

In 2018 the ASX decided to move away from CHESS and develop a new more secure system utilising the growing blockchain technology. With Australian investment assets tipped to be valued at around US2 Trillion the aging CHESS program was due for an upgrade.

With the emergence of Blockchain technology the ASX pounced on the ability to further develop their systems in what they believed to be a more secure and easier system to manage.

In 2021 progress was on track for delivering the new system despite heavy trading brought on by the pandemic.

The scheduled release of the CHESS replacement system was scheduled for April 2022 and as the date moved closer a shock announcement of the CEO's retirement was made, although he committed to the April launch.

The CEOs public statement notified people that he was standing down as he could not commit to another 6 years at the helm and thought that now was the right time to stand down and allow a new leader to step in to lead the new technology.

Shock Cancellation of Blockchain System

Given the positive news and excitement that the market went through as the shift to blockchain technology was a global first, a shock announcement to cancel the project infuriated many and costs of developing the system including trials were proven to be around AUD255 Million which also included banks and firms required to upgrade their systems.

The shock announcement came at the hand of a report delivered by Accenture which noted complexity issues amid many others like scalability. For those familiar with Blockchain technology, the Report identifies the current situation within the sector surrounding congestion and many other issues.

The ASX received support from investors who stood by the decision to transition to blockchain technology and wanted to get on with the job.

The move has brought the attention and anger of politicians and investors with one politician calling the ASX's system a conflict of interest and seeking an investigation into if the ASX should be allowed to also manage and operate the Subregister given it is the main trader of stocks and shares.

Regulators Step in

The ASX is looking to compensate trial participants for costs incurred by participating in the trial. But the actions of what have occurred have brought the ASX into a bit of hot water with ASIC the Australian Securities and Investment Commission.

With investigations underway over allegations of misleading comments and a range of other issues which ASIC has not provided public comment on.

ASX directors are held to a higher standard and there is a possibility that the former CEO and Director could be brought back and charged even if they were working in the best interests.

As a result of delays, poor communication, a scathing report and political and investor pressure the ASX has made the decision to no longer pursue the transition to blockchain technology and will maintain the current CHESS system.

A move that many are not supportive of as they believe the system requires a transition to be inline with a more modern and strong system.

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