Australia’s stock exchange has apologised for abandoning a years-long plan to upgrade its clearing and settlement system to a modern blockchain-based platform after a series of delays.
The Australian Securities Exchange’s move to drop the upgrade of its clearing housing system calls time on a project that critics say has cost the country its head-start in developing a more efficient trading system.
Damian Roche, chair of ASX, apologised for the disruption caused by the botched upgrade. “We have concluded that the path we were on will not meet ASX’s and the market’s high standards. There are significant technology, governance and delivery challenges that must be addressed,” he said.
Australian regulators had granted ASX control of the project to foster more efficient trading. In contrast, the European Union has launched a technology pilot to trial distributed ledger technology for share trading and the UK Treasury is set to do the same.
The project, launched seven years ago, has been beset by repeated delays of the system’s implementation. ASX will book a A$250mn ($168mn) charge after admitting it needed to start again.
Philip Lowe, the governor of Australia’s central bank, said that the banking industry had incurred significant costs and that any writedowns would need to be fully borne by ASX.
“The 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,” Lowe said.
Banks and financial services companies are estimated to have spent up to A$150mn preparing for the upgrade.
The decision to abandon the blockchain upgrade followed a review by Accenture that showed major deficiencies in the design of the software, developed by a company in which ASX has a stake, and questioned its ability to ever launch.
David Ferrall, head of trading platform FinClear, laid the blame on ASX and regulators who “blindly” accepted that the upgrade would deliver on its original promise.
“It is not the technology that’s the problem. It is the implementation,” he said, noting that his company has developed trading platforms using the same system that ASX has aborted.
Ferrall said that the replacement for ASX’s upgrade could be obsolete by the time it arrives in two to three years.
“We’re now falling behind the rest of the world,” he said, arguing that other markets such as the UK and EU have created “sandboxes” to promote innovation outside the traditional clearing houses, something Australia failed to do.
He said there was a risk that regulators could force a break-up of ASX by separating its exchange from its clearing operations. “That would be to the long-term benefit of the market and to the detriment of the ASX,” he said.
ASX shares closed flat on Thursday but have fallen by almost a quarter this year to a market cap of A$13.6bn.