ASIC starts proceedings against ASX regarding alleged CHESS statements

The Australian Securities and Investments Commission (ASIC) has commenced proceedings in the Federal Court against the Australian Stock Exchange (ASX) for allegedly making misleading statements related to the registry system known as CHESS.

Statements made in ASX announcements on 10 February 2022 that the project remained “on-track for go-live” in April 2023 and was “progressing well” were misleading, alleged ASIC.

The regulator alleged these statements implied the project was tracking to ASX’s announced project plan and was on track to meet future milestones, including “go-live” in April 2023.

ASIC alleged in a statement that this representation is misleading and deceptive.

At the time of the announcements, the regular claimed the “project was not tracking to plan, and ASX did not have any reasonable basis to imply the project was on track to meet future milestones”.

The regulator said that companies expect the ASX to be a place to list and invest with confidence.

“ASX’s statements go to the heart of trust in the integrity of our markets,” said ASIC Chair Joe Longo. “We believe this was a collective failure by the ASX Board and senior executives at the time.”

According to Longo, CHESS’ “critical importance was all the more reason ASX needed to ensure it told the Australian public the truth about how the project was tracking and whether it would be completed on time”.

“We allege that the true state of affairs as at 10 February 2022 was that the project was not ‘progressing well’, contrary to ASX’s announcement,” he said.

“The delay and subsequent pause of the project in November 2022 caused significant cost to ASX and market participants who relied on assurances as to the progress of the project and scheduled go-live date.

“The CHESS replacement project must be managed effectively and transparently. Failure to do so can lead to a lack of confidence in Australia as a market to attract investment.”

ASIC is yet to determine the penalty it will seek for ASX’s alleged contraventions.

However, in March this year, the regulator announced that the ASX had paid a penalty of $1,050,000 following an ASIC investigation into its compliance with the market integrity rules.

Longo said that companies and market participants rely on the ASX’s statements about its operations to make their own decisions and investments.

The CHESS replacement is a technology project of fundamental significance. It will replace critical national infrastructure crucial to the operation of the Australian economy.

In November 2022, ARN reported that significant technology, governance, and delivery challenges were some of the key findings revealed in Accenture’s report into ASX’s $250 million CHESS project failure.

As a result, the ASX returned to the drawing board and scrapped its original intentions to use distributed ledger technology at its core. 

“The independent report, coupled with our own assessment work, confirms a number of significant challenges associated with aspects of the CHESS replacement project,” ASX managing director and CEO Helen Lofthouse said at the time. “These findings provide valuable inputs to helping us determine a revised solution. We have some work to do before updating and consulting with stakeholders more deeply.”

In June 2023, ARN reported that the ASX was planning to plough on another decade with its 30-year-old registry systems following a botched attempt to replace it. 

A then report by ASIC claimed CHESS would not be sufficient to meet the scalability and flexibility features available from more modern architecture and design.