The Australian Securities Exchange (ASX) has pulled the plug on its blockchain project that was being created to replace the Clearing House Electronic Subregister System (CHESS), Australia’s equities settlement system. The blockchain project started in 2016 and has since suffered setbacks and delays. The project was initially conceived and started to be a faster and cost-effective replacement to CHESS, which was developed 25 years ago; however, after internal reviews by ASX and Accenture, the project has been scrapped.
ASX said the blockchain project incurred a pre-tax charge of about AUD 250 million ($170 million), which it will write off. ASX may also need to compensate trading firms that spent huge sums on their upgrades for the blockchain project.
Why Is The Blockchain Project Being Scrapped?
ASX announced in August that it will commission Accenture to review aspects of the blockchain project. Independent findings by Accenture revealed that the project was only about 63% done. The report also pointed out ineffective communication between ASX and its technology vendor Digital Asset; this has affected the project delivery.
ASX Managing Director and CEO Helen Lofthouse said, “replacing CHESS is a large and complex undertaking. While ASX is keen to embrace technology that benefits the market, it’s clear that we need to revisit the solution design as well as validate and test feedback from the independent review to assess changes required to bring the project to market safely, efficiently, and for the long term.”
Following the scrapping of the blockchain project, Lofthouse said the focus of ASX in the meantime is to continue to maintain the existing CHESS system while working on a revised solution. The report outlined six core issues, namely Holdings, Batch Settlement, Bulk Process Support and Resiliency, Bilateral Matching, Issuer Notifications, and Support for Ex-Transactions. The driving factors that contribute to the challenges ASX currently face with its blockchain projects are latency, concurrency, batch processing, and other technical constraints.
ASX cited latency as one of the drawbacks of its scrapped blockchain project. Distributed systems introduce higher latency, and in the current architecture, the latency is further increased due to the round-trip data flow of submitting a transaction to the client node and writing data on the distributed ledger, according to the report. ASX’s business model requires batch processing (transaction grouping), where groups of transactions are combined into a single batch for processing. The report says grouping transactions in a batch is limited by constraints imposed that need to be tested further. ASX also cited other limits in the scrapped system which could be a hindrance to extensibility.
ASX says its next step is to undertake further planning to understand and evaluate the solution design options for CHESS replacement and their potential impacts. ASX says it continues to engage and work constructively with government and regulatory agencies, including on any regulatory measures in response to its latest announcement.