AUSTRALIAN STOCK EXCHANGE WANTS OVERSIGHT OF BLOCKCHAIN TRADING SYSTEM

The potential for blockchain technology to revolutionize financial markets has been a topic of much discussion, and the Australian Stock Exchange (ASX) has found itself at the center of this conversation. 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 moreWhile the ASX grapples with the fallout from its abandoned attempt to replace its aging CHESS system with a blockchain-based platform, concerns are rising about fair competition.Chi-X Australia, the ASX's sole competitor, has voiced its strong desire for greater oversight of any future blockchain initiatives by the ASX. The home of Australia's financial markets.The heart of the issue lies in the perception that a blockchain-based system, if implemented by the dominant ASX without proper scrutiny, could create an unfair advantage, potentially stifling competition and hindering innovation within the Australian financial landscape. The ASX poured money into a program that could have seen it move its paper-based CHESS system into a whole-of-systems blockchain-based platform.This complex situation raises fundamental questions about regulatory oversight, technological advancement, and the future of securities trading in Australia.The ramifications of this debate extend far beyond the ASX and Chi-X, impacting investors, market participants, and the overall health of the Australian economy.

The CHESS Replacement Saga: A Blockchain Dream Deferred

The story of the ASX and blockchain is a cautionary tale of ambition, complexity, and ultimately, disappointment.For years, the ASX pursued an ambitious project to replace its Clearing House Electronic Subregister System (CHESS), a decades-old clearing and settlement system, with a cutting-edge blockchain-based solution.The goal was to modernize the Australian financial market infrastructure, boost efficiency, mitigate risks, and potentially offer new services to market participants.The exchange initially partnered with Digital Asset Holdings, a US start-up, to build the new system.The promise of blockchain technology was compelling: a secure, transparent, and efficient platform for managing the clearing and settlement of trades.

However, the project encountered numerous challenges and delays. The Australian Securities Exchange (ASX) caused frustration among market participants in November 2025 when it decided to pause the rebuild of its comprehensive trading, settlement andTechnical complexities, regulatory hurdles, and a lack of industry consensus all contributed to the growing unease surrounding the CHESS replacement.Despite investing significant resources, estimated at up to A$255 million, the ASX ultimately decided to abandon the blockchain-based rebuild in late 2025. A rebuild of the exchange's aging software using blockchain-based technology was largely ready after seven years of development, putting ASX on the verge of a world-first transformation that wouldThis decision sent shockwaves through the Australian financial community and raised serious questions about the ASX's governance and project management capabilities.

ASIC's Lawsuit and Regulatory Scrutiny

The failure of the CHESS replacement project has triggered significant regulatory scrutiny.The Australian Securities and Investments Commission (ASIC), the country's corporate regulator, has launched an investigation into potential contraventions of the ASIC Act and the Corporations Act in relation to the bungled CHESS replacement program.ASIC has also filed a lawsuit against the ASX for allegedly making misleading statements about the progress of the project. The Australian Securities Exchange (ASX) has signalled it will abandon plans to rebuild its core platforms on blockchain technology. In 2025 the ASX decided to replace its core app, named CHESS, with a system based on blockchain and Digital Asset Modelling Language (DAML). The Exchange hoped toThis legal action underscores the seriousness of the situation and the potential consequences for the ASX.

The lawsuit alleges that the ASX failed to adequately inform the market about the risks and challenges associated with the CHESS replacement, potentially misleading investors and market participants.ASIC's involvement highlights the importance of transparency and accountability in the management of critical market infrastructure projects. The exchange handles all of the country s share and bond trading, and initially hired Digital Asset Holdings, a US start-up headed by former JPMorgan banker Blythe Masters to help build the newThe outcome of the lawsuit could have significant implications for the ASX's reputation and future operations.

Chi-X's Call for Oversight: Ensuring Fair Competition

While the ASX grapples with the fallout from its failed blockchain venture, its competitor, Chi-X Australia, is raising concerns about the potential for future unfair competition.Chi-X, which operates as an alternative trading platform in Australia, argues that any future blockchain initiatives by the ASX should be subject to rigorous regulatory oversight.The core concern is that the ASX, as the dominant market operator, could leverage its position to create a blockchain-based system that advantages its own operations at the expense of competitors.

Chi-X's concerns are rooted in the potential for the ASX to control access to the blockchain network, set pricing policies, and influence the development of new features and functionalities.Without adequate oversight, Chi-X argues, the ASX could effectively create a closed ecosystem that stifles competition and limits innovation.

The Potential for Unfair Advantage

To understand Chi-X's concerns, it's crucial to consider the potential ways in which a blockchain-based system could create an unfair advantage for the ASX:

• Data Access: The ASX could have preferential access to market data stored on the blockchain, giving it an information advantage over competitors.
• Pricing: The ASX could set pricing policies for accessing the blockchain network that unfairly disadvantage Chi-X.
• Governance: The ASX could control the governance of the blockchain network, influencing the development of new features and functionalities in a way that benefits its own operations.
• Network Effects: As the dominant market operator, the ASX could leverage its existing network of participants to attract more users to its blockchain-based system, creating a self-reinforcing cycle of dominance.

These potential advantages highlight the need for independent oversight to ensure that any future blockchain initiatives by the ASX are fair, transparent, and accessible to all market participants.

The Role of Regulation: Balancing Innovation and Competition

The debate surrounding the ASX and blockchain raises fundamental questions about the role of regulation in fostering innovation while ensuring fair competition. One of the world's most prominent and mission critical uses of the blockchain - The Australian Securities Exchange's (ASX) project to replace its CHESS core trading systems with a distributed ledger has struck further trouble. Yesterday the bourse revealed we do not expect that the go-liveRegulators face the challenge of striking a balance between encouraging technological advancement and preventing market dominance. ASIC is an independent Australian Government body responsible for regulating financial services and consumer credit, and authorised financial markets operating in Australia. Australian Securities and Investments CommissionIn the case of the ASX, ASIC has a critical role to play in overseeing any future blockchain initiatives to ensure that they are consistent with the principles of fair competition and market integrity.

Effective regulation should include:

1. Transparency: Requiring the ASX to disclose its plans for any future blockchain initiatives, including the technical specifications, governance structure, and pricing policies.
2. Independent Oversight: Establishing an independent body to oversee the development and operation of any blockchain-based system implemented by the ASX.
3. Open Access: Ensuring that all market participants have fair and equal access to the blockchain network, regardless of their size or market share.
4. Non-Discriminatory Pricing: Implementing pricing policies that are fair, transparent, and non-discriminatory.
5. Data Security and Privacy: Establishing robust data security and privacy protocols to protect sensitive market information.

By implementing these measures, regulators can help ensure that any future blockchain initiatives by the ASX promote innovation while safeguarding the interests of all market participants.

Blockchain in Financial Markets: A Global Perspective

The ASX's experience with blockchain is not unique.Exchanges around the world are exploring the potential of distributed ledger technology to transform financial markets.The Swiss Digital Exchange (SDX), for example, is operated by Switzerland's SIX exchange and has introduced a blockchain-powered digital platform that allows for tokenizing traditional assets, thus simplifying their tradeability. Chi-X Australia, the only competitor of the Australian Securities Exchange (ASX), wants more oversight of ASX s upcoming blockchain settlement system that will replace its decades-old CHESSOther exchanges are experimenting with blockchain for various applications, including clearing and settlement, trade reporting, and identity management.

However, the adoption of blockchain in financial markets is still in its early stages. 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. 17Regulatory uncertainty, technical challenges, and a lack of industry standards are all hindering widespread adoption.The ASX's experience serves as a reminder that implementing blockchain in complex financial systems is a challenging undertaking that requires careful planning, robust risk management, and strong regulatory oversight.

Lessons Learned from the ASX's Experience

The ASX's failed CHESS replacement project offers valuable lessons for other exchanges considering blockchain adoption:

• Start Small and Iterate: Rather than attempting a large-scale replacement of existing systems, consider starting with smaller, pilot projects to test the technology and build expertise.
• Engage with Stakeholders: Engage with all relevant stakeholders, including market participants, regulators, and technology providers, to ensure that the project meets their needs and expectations.
• Manage Expectations: Be realistic about the challenges and risks associated with blockchain adoption.Avoid overpromising and underdelivering.
• Focus on Business Value: Focus on the business value that blockchain can deliver. The Australian Securities Exchange (ASX) has paused its multi-year effort to replace its core trading systems with a blockchain-powered platform, written off up to AU$255 million ($171m) of work, and been advised to reconsider whether distributed ledger technology has a role in the project.Don't adopt the technology simply for the sake of it.
• Ensure Strong Governance: Establish a strong governance framework to oversee the development and operation of any blockchain-based system.

By learning from the ASX's experience, other exchanges can increase their chances of successfully implementing blockchain in their financial markets.

The Future of Trading Systems: Beyond Blockchain?

While the ASX's experience has cast doubt on the immediate prospects of blockchain for core trading systems, the underlying need for modernization remains.The pressure to improve efficiency, reduce costs, and enhance security continues to drive innovation in financial market infrastructure. The ASX confirmed on Wednesday that the Australian Securities and Investments Commission (ASIC) has launched an investigation into potential contraventions of the ASIC Act and the Corporations Act in relation to the bungled CHESS replacement program, which was paused late last year after $255 million and seven years in development.Alternative technologies, such as cloud computing and advanced analytics, may offer viable solutions for upgrading trading systems.The key is to adopt a pragmatic approach, focusing on solutions that deliver tangible benefits while mitigating risks.

The ASX itself is likely to explore alternative solutions for modernizing its CHESS system.A phased approach, focusing on incremental improvements and leveraging existing technologies, may be a more prudent strategy than attempting a radical overhaul based on blockchain.The future of trading systems is likely to involve a combination of technologies, with blockchain playing a role in specific applications where it offers a clear advantage.

Frequently Asked Questions

Here are some frequently asked questions about the ASX, blockchain, and the future of trading systems:

Why did the ASX abandon its blockchain project?

The ASX abandoned its blockchain project due to a combination of factors, including technical complexities, regulatory hurdles, and a lack of industry consensus. The ASX s backpedalling from its plan to build a private blockchain comes after a horrid few weeks in the space more broadly, after crypto exchange FTX collapsed, dragging down the value of aThe project encountered numerous delays and cost overruns, ultimately leading the ASX to conclude that it was not feasible to proceed.

What are the benefits of using blockchain in financial markets?

Blockchain offers several potential benefits for financial markets, including increased efficiency, reduced costs, enhanced security, and improved transparency. SYDNEY, May 19 (Reuters) - Australia's stock market operator said it will no longer attempt to rebuild its software platform with blockchain-based technology, one of the highest-profileHowever, realizing these benefits requires careful planning, robust risk management, and strong regulatory oversight.

What are the risks of using blockchain in financial markets?

The risks of using blockchain in financial markets include technical complexities, regulatory uncertainty, security vulnerabilities, and the potential for market manipulation.It is crucial to address these risks before implementing blockchain in critical market infrastructure.

What is Chi-X's concern about the ASX using blockchain?

Chi-X's primary concern is that the ASX, as the dominant market operator, could leverage its position to create a blockchain-based system that advantages its own operations at the expense of competitors.Chi-X argues that any future blockchain initiatives by the ASX should be subject to rigorous regulatory oversight to ensure fair competition.

What is ASIC's role in overseeing the ASX's blockchain initiatives?

ASIC, the Australian Securities and Investments Commission, is responsible for regulating financial markets in Australia.ASIC has a crucial role to play in overseeing any future blockchain initiatives by the ASX to ensure that they are consistent with the principles of fair competition and market integrity.

Conclusion: A Measured Approach to Technological Innovation

The Australian Stock Exchange's experience with blockchain serves as a valuable lesson for the financial industry. The Australian Securities and Investments Commission (ASIC) announced yesterday that it is suing the Australian Securities Exchange Ltd (ASX) for misleading statements the exchange operator made regarding its now abandoned plan for a blockchain-based replacement to its Clearing House Electronic Subregister System (CHESS).While the potential of blockchain to transform financial markets is undeniable, its implementation requires a measured and pragmatic approach. The Australian Securities and Investments Commission was handed the oversight powers after the failure of CHESS, as its ageing clearing and settlement system is known, in 2025.Regulatory oversight is essential to ensure fair competition and protect the interests of all market participants. An Australian stock exchange is concerned that the blockchain-based system of its sole competitor could pose an unfair advantage. The Australian subsidiary of market operator Chi-X called on theAs the ASX moves forward, it is crucial to learn from past mistakes and adopt a strategy that balances innovation with risk management.The future of trading systems is likely to involve a combination of technologies, with blockchain playing a role in specific applications where it offers a clear advantage.The call for oversight by competitors like Chi-X highlights the importance of transparency and a level playing field as new technologies are integrated into the financial ecosystem.

Key takeaways:

• The ASX's abandoned blockchain project highlights the challenges of implementing distributed ledger technology in complex financial systems.
• Chi-X's call for oversight underscores the importance of ensuring fair competition in the adoption of new technologies.
• Regulatory oversight is essential to balance innovation with risk management and protect the interests of all market participants.
• A measured and pragmatic approach is crucial for successfully implementing blockchain or any other new technology in financial markets.

Are you ready to learn more about blockchain technology and its potential impact on your investments?Contact a financial advisor today to discuss your options.