ASIC Takes Legal Action Against ASX Over CHESS System Delay
ASIC Takes Legal Action Against ASX Over CHESS System Delay
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The corporate regulator has taken legal measures against ASX due to alleged misleading statements regarding the progress of its failed attempt to replace the Clearing House Electronic Subregister System (CHESS).
On February 10, 2022, ASX had publicized that the CHESS replacement was “on track for go-live†by April 2023. However, subsequent developments painted a different picture, prompting sharp criticism and legal actions from the Australian Securities and Investments Commission (ASIC).
ASIC's complaints arise from reassurances given by the ASX suggesting that the project was "progressing well." Yet, by late March 2022, ASX consulted Accenture, whose findings led to the project's shelving and $250 million in write-offs.
In his statement unveiling the court action, ASIC chair Joe Longo remarked, “There was a collective failure by the ASX board and senior executives.†He underscored that ASX’s promises are vital for trust within the financial markets.
“Companies and investors rely heavily on ASX’s communications regarding their operations to make investment decisions. A breach of confidence at this level induces extensive repercussions across the market,†Longo added.
The legal actions come on the heels of a pre-existing penalty amounting to $1,050,000 paid by ASX after an ASIC investigation scrutinized its adherence to market integrity rules.
Moreover, criminal charges were recently directed at four individuals allegedly involved in a "pump and dump" operation via Telegram, spotlighting ASIC's dedication to regulatory compliance.
The CHESS system, originating in 1994, initially replaced a laborious paper-based clearing approach. The award-winning transaction clearing system proved instrumental for brokers who floated the exchange in 1998, now known as ASX Ltd. The shift from manual to digital processes was seen as a massive leap in operational efficiency at the time.
ASX had planned to replace the decade-old CHESS system beginning in 2016, targeting an April 2021 completion date. However, the project timeline was redefined to April 2023 after re-planning in March 2020.
Subsequently, Digital Assets, ASX’s advisory consultants, flagged the project with a “red RAG†status from June to November 2021, indicating severe risks to timely delivery without appropriate mitigations.
This red status, an IT project management term for serious concerns, was documented and presented to ASX’s audit committee in early February 2022. Nonetheless, ASX published its half-yearly report a week later, asserting that the project was "tracking to plan and progressing well," a statement that ASIC now disputes.
Longo emphasized, “We will argue that the project was not ‘progressing well’ as of February 10, 2022. The postponement and subsequent pause in November 2022 have significantly impacted ASX and the market participants dependent on these assurances.â€
Highlighting the necessity for transparent and efficient management of such pivotal projects, Longo remarked, “Ineffective handling erodes confidence in Australia's market's ability to attract investment.â€
The original article was published by Neale Prior for The West Australian
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Discount Rate: The interest rate used to determine the present value of future cash flows, often used in discounted cash flow analysis.
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