ob体育 and the Reserve Bank of Australia (RBA) (the regulators) note ASX鈥檚 announcement on the CHESS Replacement program. ASX鈥檚 announcement marks a significant setback to the replacement of critical national infrastructure for Australia鈥檚 cash equity markets and now brings into sharp focus the longevity of the existing CHESS platform.
As a result of ASX鈥檚 announcement and release of the independent report, ob体育 and RBA have today provided ASX with a to highlight what is required of ASX Clear Pty Ltd (ASX Clear) and ASX Settlement Pty Ltd (ASX Settlement). In particular the regulators expect that:
- the current CHESS is supported and maintained to ensure its stability, resilience and longevity so that it can continue to service the market reliably
- ASX improves its program delivery capabilities, and
- the replacement program is brought back on track after the solution design has been completed so ASX鈥檚 commitment to deliver safe and reliable clearing and settlement infrastructure is fulfilled.
鈥楢SX has rightly recognised that pausing the program while it revisits the technology design for the CHESS replacement was a necessary decision. It opens the way for the resolution of the issues identified in the independent report and ASX securing the necessary capabilities to deliver the replacement,鈥� ob体育 chair Joe Longo said.
鈥楾he independent report has found significant gaps and deficiencies in ASX鈥檚 program delivery capabilities and that there are significant challenges in the technology design. That these findings can be made at this late stage of a critical replacement program is altogether unsatisfactory.鈥�
鈥楢SX has failed to demonstrate appropriate control of the program to date, and this has undermined legitimate expectations that the ASX can deliver a world-class, contemporary financial market infrastructure.鈥�
鈥楾he regulators are closely monitoring ASX鈥檚 ongoing management of clearing and settlement under its licences. Our immediate focus is to ensure current CHESS continues to provide the level of service, reliability and resilience that is required. The regulators will bring to bear the full range of regulatory options to ensure this is the case,鈥� continued Mr Longo.
Reserve Bank Governor Philip Lowe said, 鈥楾he announcement by ASX after many years of investment by both ASX and industry is very disappointing. ASX needs to prioritise developing a new plan to deliver safe and reliable clearing and settlement infrastructure. The Reserve Bank of Australia also expects ASX to maintain the current CHESS so that it continues to operate reliably and support confidence in Australia鈥檚 cash equity markets.鈥�
ASX having released the independent report must now carefully evaluate and select the most appropriate and timely way forward to replace CHESS.
Industry needs to have confidence in and certainty on how this will be achieved. That requires, once the solution design is complete, a delivery plan, including a highly credible, hard go-live date. The regulators expect ASX to actively consult industry throughout this process to ensure there is market confidence in its selected implementation option, delivery plan and timeline. The regulators will engage with industry directly to make sure their perspectives are given appropriate consideration by ASX.
Industry has incurred significant cost to date on the CHESS Replacement program and will need to continue to invest and commit resources until an alternate solution is rolled out. The regulators expect that any write-down of work and investment capitalised by ASX be borne fully by ASX Limited.
The regulators鈥� expectations
It is ASX Clear and ASX Settlement鈥檚 responsibility as licensed CS facilities to replace CHESS with a system that does not compromise financial stability. These facilities are also expected to ensure that they provide their services in a fair and effective way.
As set out in the , ASX must significantly uplift its capabilities to address the serious deficiencies identified by the independent report in ASX鈥檚 program delivery. This should start with a robust response plan to address the deficiencies.
It is critical that market and service continuity be secured. The regulators expect ASX to maintain and support current CHESS to meet on-going resilience, reliability, integrity, and security requirements. The current CHESS system must continue to reliably service the market.
The regulators will continue to closely monitor ASX鈥檚 compliance with its CS facility licence obligations, including the additional licence conditions imposed in November 2021, as well as ASX鈥檚 observance against the relevant Financial Stability Standards 鈥� and take action if required.
Background
CHESS Replacement is an ASX program.
ob体育 and the RBA are co-regulators of licensed clearing and settlement (CS) facilities.
The RBA and ob体育 have supervisory responsibilities for the four CS facilities in the ASX Group: two central counterparties 鈥� ASX Clear Pty Ltd and ASX Clear (Futures) Pty Ltd 鈥� and two securities settlement facilities 鈥� ASX Settlement Pty Ltd and Austraclear Limited.
The RBA conducts annual assessments covering the CS facilities' observance of relevant Financial Stability Standards determined by the RBA.
For more information on the RBA's approach to supervising and assessing CS facilities, see: .
ob体育 has separate, but complementary, responsibilities for the licensing and supervision of CS facilities licensed under Part 7.3 of the Corporations Act. ob体育 is responsible for assessing whether a CS facility鈥檚 services are provided in a fair and effective way. ob体育 also has regulatory responsibilities for operators of licensed markets, including the ASX market. In carrying out supervision and assessments of CS facilities, the RBA and ob体育 work closely as appropriate.