Australian Securities Exchange (ASX) has announced that it will defer the settlement of trades from Friday to Monday due to a significant malfunction in its Clearing House Electronic Subregister System (CHESS). The software outage has disrupted its ability to process trades, causing delays in settlements and registry transactions.
CHESS System Breakdown
The CHESS system, a critical component of the ASX infrastructure, is responsible for the settlement of trades, which typically occur two business days after a trade is agreed. It ensures that money is transferred between buyers and sellers and electronically registers the ownership of shares. However, due to the breakdown, the ASX was unable to carry out any settlements on Friday. The exchange confirmed that while it was still receiving trades from approved market operators, the processing of demand and registry transactions was put on hold.
The ASX stated that it is making every effort to identify the root cause of the issue and promised to provide updates as new information becomes available. The company also revealed that it had initiated the process to reschedule settlement instructions from the CHESS system to be processed on Monday.
Impact on the Market
The outage occurred on a day when the S&P/ASX 200 benchmark index had already dropped 1.2%, reaching its lowest level since mid-September. The timing of the CHESS system failure is particularly problematic as it coincides with a market downturn, adding to investor concerns and uncertainty.
ASX’s Efforts to Modernize CHESS
The CHESS outage comes as ASX had previously sought to modernize its settlement system. In 2016, the company announced plans to replace the aging system with a blockchain-based solution. However, after six years of development, ASX abandoned the blockchain overhaul in November 2022, citing concerns about its complexity and scalability.
Instead, ASX opted for a more conventional approach, hiring Tata Consultancy Services (TCS) to carry out a two-stage overhaul of the CHESS system. This process is expected to conclude by 2029. The new approach aims to modernize the infrastructure without the complexities that plagued the blockchain solution.
Conclusion
The CHESS software outage has disrupted trade settlements on the ASX, deferring settlements to Monday and highlighting the vulnerability of the bourse’s aging infrastructure. While the ASX works to resolve the issues, market participants are left in a state of uncertainty, especially following a downturn in the stock market. With plans to overhaul the system by 2029, the ASX’s efforts to modernize its infrastructure remain a work in progress.
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