ASIC launches investigation into ASX after ‘repeated and serious failures’ in trading infrastructure

The corporate watchdog has launched an investigation into the Australian Securities Exchange following “repeated and serious failures” in maintaining the infrastructure critical to equities trading.

The inquiry will examine a series of technology failures at the ASX, primarily related to its troubled upgrade of the CHESS settlement system, which manages the settlement of share transactions and records shareholdings.

ASIC and the Reserve Bank voiced deep concerns in December 2024 when the system failed to complete a settlement run.

Watchdog chair Joe Longo said a well-resourced “holistic inquiry” was needed to get to the root cause of the problems.

He said there had been a continued resurfacing of operational and technical failings at ASX and his agency had tried for more than four years to get them fixed through a variety of traditional regulatory activities.

“The critical problem is that the pace of change . . . has been too slow,” he said. “ASIC expects to see action. It’s not that our regulatory actions have been unsuccessful, it’s just their cumulative effect have not got us where we want.

“ASX is ubiquitous — you simply cannot buy and settle on Australia’s public equities and futures markets without relying on ASX and its systems.”

ASIC will convene an expert panel to review the ASX group’s organisational structure, board governance, risk and compliance frameworks, financial objectives, and its mix of monopoly and competitive services. It will also examine how the organisation identifies and responds to concerns raised by staff, regulators and market participants.

The panels will consider whether ASX has “the right organisational capabilities . . . to provide a stable, secure, and resilient market infrastructure and to meet the evolving needs of the Australian market”.

The panel, which would include representatives of the RBA, the Australian Prudential Regulation Authority and the Australian Competition and Consumer Commission, will consider whether current reform initiatives under way at ASX are adequate and, if not, recommend remedial actions.

A final report will be delivered to ASIC at a date to be agreed.

At a briefing for analysts and journalist, ASX chief executive Helen Lofthouse said questions about what had triggered the stepped-up ASIC inquiry should be answered by the regulator.

But Ms Lofthouse said ASX needed to accelerate its work in boosting operational risk management, resilience and in the culture and leadership capabilities as part of an attempt to “transform” the group.

“Those are really the areas that we are already very focused on,” she said. “I think there’s significant overlap there with the areas that our regulators are focused on.

“Our strategy is really a transformational strategy that’s very much focused on building market trust and confidence, and that’s with all of our stakeholders.

“Whilst we made some really good progress in a number of areas, there are absolutely some key areas where we haven’t yet made the progress that we want to.”

ASX’s initial attempt to upgrade CHESS was plagued by delays and problems, resulting in pre-tax writedowns of $250 million about three years ago. The project was ultimately scrapped in late 2022, shortly after Ms Lofthouse became CEO.

The failure to implement a new system had put the ASX in the sights of a class action suit that would target former executives, management and potentially board members, according to a recent report in the Australian Financial Review.

ASIC will discontinue its separate investigation into the December 20, 2024 CHESS batch settlement failure, with the incident instead to be considered as part of the broader inquiry, alongside a series of other failures dating back to 2016, including a hardware fault that delayed the market opening and forced an early closure that year.

Other issues included capacity constraints during the COVID-19 volatility in March 2020, a full-day outage caused by a failed software upgrade in November 2020, and the abandonment of the original CHESS replacement project in 2022.

ASX chairman David Clarke said the firm acknowledged the seriousness of the action, and would give the inquiry its full co-operation.

“We have been working hard on a transformation strategy with several of the initiatives designed to strengthen culture and capabilities, operational risk management, business resilience and technology resilience,” Mr Clarke said.

“But we acknowledge there have been incidents that have damaged trust in ASX,“ he said.

“We welcome the opportunity for independent parties to review the work underway and advise on what more we can do.”

The ASX is midway through a five-year technology modernisation program that includes maintaining the existing CHESS platform, introduced in 1994, while building a blockchain-based replacement.

Meanwhile, ASX has announced the departure of group executive listings Blair Beaton, who exits following an extended period of personal leave.

Mr Beaton, who joined the exchange in 2017 as chief strategy officer and became head of listings in August 2022, was praised by Ms Lofthouse for his “dedication, diligence and enthusiasm” and his advocacy for ASX as the nation’s premier listings venue.