ASX Delays CHESS Deployment for Fifth Time, and Users Pay

Instead of reviewing the viability of the project as suggested by Chanticleer in June, Lofthouse asked Accenture to undertake a 12-week review and report to ASX and its two regulators, the Reserve Bank of Australia and the Australian Securities and Investments Commission.

loose oversight

The RBA and ASIC have been lax in their oversight of the ASX and the replacement of CHESS, which is the most critical technological upgrade to Australia’s financial markets infrastructure in 25 years.

RBA Governor Philip Lowe and ASIC Chairman Joe Longo expressed disappointment at the delayed go-live date for the CHESS replacement. They don’t have the power to do much more as ASX decides the scope and pace of the CHESS upgrade.

Longo believed everything the ASX told him about replacing CHESS, as evidenced by his testimony before the Joint House Committee on Corporations and Financial Services in September last year.

Asked by Liberal Senator Paul Scarr about the risks associated with the April 2023 go-live date, Longo said, “The technology has actually been built.”

“I think it is very important for the committee to understand that, as Commissioner Armor explained, they are testing at this very moment.

“The next 14 months are going to be spent testing the system and making sure it can actually work when they turn it on.”

Scarr, who has been asking ASIC pointed questions about replacing CHESS for two years, tells Chanticleer that Accenture’s review of the ASX-commissioned project doesn’t go far enough.

“In my view, they (ASX) really need to consider the scope of the independent review undertaken by Accenture,” he says.

“This project now has such a torturous history that it really requires careful analysis when it comes to the progress as a whole and the future progress of it.”

Accenture had to draw a fine line between independence and conflict of interest given that it already works for the ASX on a number of different projects, including replacing CHESS.

It is because of this existing work that the independent review of CHESS involves a team from Accenture independent of those already working for ASX.

Further, it explains why, according to an ASX spokesperson, “ASX has engaged EY to assess the terms of reference for the review to ensure appropriate governance arrangements are in place.”

Over the past month, as the CHESS replacement project seemed less and less likely to meet workflow deadlines, there was a discussion about a stark choice facing project managers.

The two key questions were: Should we focus our energy on ensuring that the new system has the capacity to cope with the higher transaction volumes experienced in March 2020? Or should we make sure to deliver the feature upgrades promised to market players four or five years ago?

Based on the ASX announcements on Wednesday, the decision was made to focus on handling higher volumes, as evidenced by Hogben’s statement in a note to participants.

“ASX and Digital Asset (DA), our application software provider, have identified that more development is needed than expected to meet ASX’s scalability and resiliency requirements for the application, to create a new clearing and settlement system that meets the needs of Australian financial markets into the future,” he said.

“This contributes to delays in the delivery of the remaining technical elements.
demand components.

What is shocking about this statement is that Hogben admitted in interviews last year that one of the reasons for the delay of the go-live date from 2022 to 2023 was the inability to include scalability sufficient in the system.

It is now reasonable for market players to wonder if the final CHESS replacement product will have the functionality promised when the project was launched.

Market participants now need to invest more in IT resources to match ASX spending. ASX is thought to spend around $50 million a year on CHESS, so the delay will push the cost of the project well over $300 million.

A major market player says, “Our problem is that the ASX is an unregulated monopoly and users are expected to bear all the costs.

“I’ve hired people and diverted all of my IT resources to this project so that all the work sits idle and wasted because it’s on hold.

“We’re sitting there as a participant supposed to make the case for their mistakes. If the costs double, we will just have to cope.

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