ASX

Aussie stock exchange abandons blockchain plans, leaving $170M hole

The blockchain-backed upgrade in the works for nearly five years has potentially cost Australia’s primary exchange over $170 million.

The long-anticipated plans by the Australian Securities Exchange (ASX) to use blockchain to bring its clearing and settlements system into the 21st century have just been canceled.

In a Nov. 17 statement, ASX announced it had paused all current activities of its “CHESS replacement project” following an independent review from technology consulting firm Accenture, which identified “significant challenges with the solution design and its ability to meet ASX’s requirements,” stating:

“Current activities on the project have been paused while ASX revisits the solution design.”

For the last five years, ASX had been working on a distributed ledger technology (DLT) solution that would replace its 25-year-old Clearing House Electronic Subregister System (CHESS) used to record shareholdings and manage transaction settlements.

Originally the system was slated for a 2020 launch, but the project was marred by multiple delays over the years with the ASX saying it needed more time for testing, had uncertainty around COVID-19, needed more time for development, capacity overhauls and even more testing before it went live.

Amongst findings in its 47-page report, Accenture said that business workflows are “not tailored for a distributed environment,” the DLT-based system was too complex, and the completion timeline was uncertain regardless of the application software being over 60% complete.

ASX chairman Damian Roche apologized for the disruption, adding “there are significant technology, governance, and delivery challenges that must be addressed.”

Helen Lofthouse, ASX managing director and CEO said “it’s clear we need to revisit the solution design” adding “we have some work to do before updating and consulting with stakeholders more deeply.”

Thee announcement has drawn criticism from the Australian Securities Investment Commission (ASIC) and the Reserve Bank of Australia (RBA) — respectively the country’s financial market regulator and central bank — which released a joint statement on the matter.

RBA Governor Philip Lowe called the ASX announcement “very disappointing” and ASIC chair Joe Longo said the ASX “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.”

The two organizations highlighted their expectations saying the CHESS replacement must be live before the current system no longer meets requirements and that “market and service continuity be secured” by the current system.

The ASX must also “uplift its capabilities” and address “the serious deficiencies identified by the independent report” starting by creating a plan to address them.

The ASX said the project had racked up a pre-tax charge of between $164.6 million and $171.3 million ($245 to 255 million Australian dollars).

Australian Securities Exchange takes step towards tokenized asset trading

“There’s a strong value proposition here that we can essentially tokenize any asset and bridge that into the ASX ecosystem,” said Zerocap CEO Ryan McCall.

Companies on the Australian Securities Exchange (ASX) could be able to trade tokenized bonds, equities, funds, or carbon credits after a successful proof-of-concept trial led by the digital asset investment platform Zerocap.

On Monday, Melbourne-based digital asset investment platform Zerocap told Cointelegraph it had successfully used Synfini to bridge over its custody infrastructure onto the platform as part of a trial program, allowing for the trading and clearing of Ethereum-based tokenized assets.

The trial is part of ASX’s distributed ledger technology (DLT)-based settlement project Synfini which was launched in November. The platform offers clients access to ASX’s DLT infrastructure, data hosting and ledger services, enabling them to build blockchain applications off of it.

Zerocap co-founder and CEO Ryan McCall stated that it occurred last year and that “it got a lot of interest” in the institutional sphere, particularly from companies that are exploring ways to tokenize and trade bonds, funds or carbon credits:

“Thinking beyond Bitcoin, Ethereum and other crypto assets, the tokenization of bonds, equities, property, carbon credits, private equity, and anything that’s essentially illiquid, there’s a strong value proposition here that we can essentially tokenize any asset and bridge that into the ASX ecosystem.”

McCall outlined that the companies dealing with especially “opaque and difficult to access markets” such as bonds and carbon credits are seeking out ways to efficiently cut costs, save time on issuance and open up broader investment access via tokenized offerings.

Questioned on whether the ASX would be able to offer crypto trading via Synfini, McCall stated “yes” but that he hasn’t seen any indicators of interest in this field, as the ASX and others are primarily focused on tokenizing traditional/real-world assets.

It is worth noting however that Synfini is a separate initiative from ASX’s blockchain-based CHESS system replacement that has yet to be implemented after facing years of technical issues.

McCall went on to suggest that Zerocap could be looking to officially launch asset tokenization and trading services via Synfini to institutions in the near future, as it has just cleared the necessary steps for legal approval.

“Since then we’ve been going through the certification process to get into the production environment, which as you can probably imagine, for any sort of enterprise software, but certainly for an exchange, it’s a fairly stringent process. So we’ve just cleared the production certification. So getting ready to deploy this now,” he said.

McCall also highlighted that with the ASX being a reputable source to host digital asset trading, doing so would likely dampen institutional concern over counterparty risk relating to the crypto sector.

Such risks have been thoroughly prevalent this year due to several major crypto firms either facing liquidity issues, or going completely bankrupt in the case of Celsius, Voyager Digital and Three Arrows Capital:

“So counterparty risk, you know, credit risk specifically I guess is the biggest talking point in crypto at the moment with the 3AC disaster. And I think that just demonstrates the use case for what the ASX is trying to do here.”

“You know, thinking about the ecosystem and investor protections and all the things that it offers, there’s definitely a need for something like that in digital assets,” he added.

The Zerocap CEO also suggested that Synfini will likely be utilized by a wide range of firms, as the platform is user-friendly and removes a lot of variables for companies.

“If a custodian or a fund manager or any application developer wants to come and build a blockchain application, they can do that on this Synfini platform without having to really worry about managing any of the infrastructure, which is pretty cool,” he said.

Zerocap recently had a hand in a tokenized carbon credit transaction in late June, with the firm providing market-making services and liquidity for an exchange between major Australian family office Victor Smorgon Group and BetaCarbon, a blockchain-based carbon trading platform.

The deal was also facilitated via A$DC, a fully AUD collateralized stablecoin developed by “big four bank” Australian bank ANZ.