ASX To Endorse Distributed Ledger Technology by 2020

By Dmitriy

On Thursday, the Australian Securities Exchange (ASX) disclosed its intention to become world’s first global stock exchange to embrace and adopt distributed ledger technology (DLT) also known as blockchain. The Australian Securities Exchange has released a consultation paper proposing to replace Clearing House Electronic Subregister System (CHESS) with a blockchain based system known as Distributed ledger-based technology (DLT). The ASX has announced that it will implement DLT before the fourth quarter of 2020.

On Friday, ASX published an eighty-seven-page consultation paper which included the details stats about the progress in the system towards the production launch and also outlines about the new features that are planned along with the 2 A? year implementation plan. The consultation paper also included details about as to when the switch will be made along with a brief description of all the different types of functions that it will support and also details about the functions which it won’t support. According to the paper, the ASX will introduce new 50 features that can help with the cost reductions and they are also going use the DLT to manage and control the Australian Financial market.

According to a report, ASX announced that they will be able to provide a fully functional final roadmap at the end of July 2018 depending on the extent of consulting feedback received. Digital Asset, a New York-based fintech firm builds DLT products is also the main technical associate in this initiative. This new technology will allow both the settlement party members of the bilateral transaction to pre-match the transaction before the settlement period without actually committing the transaction for settlement. 

From past 25 years, CHESS has been the main core system used for settlement, clearing, asset registration and all the other post-trade service that needed to be carried out for the market to function properly. According to Australian Securities Exchange, CHESS is a stable system and effectively delivers the services and there is no indication that CHESS will quit providing this service level, however, the new DLT system will provide a huge range of benefits to a wide range of cross-section of the market.

Since 2015, ASX has been exploring options to replace CHESS with Distributed Ledger Technology (DLT). Elmer Funke Kupper, the managing director of ASX at that time stated that Distributed Ledger Technology aka Blockchain based platform will be the best substitute for CHESS. He declared Distributed Ledger Technology is once in a decade opportunity for a technological upgradation.

On December 2017, Dominic Stevens, the current CEO and managing director of ASX confirmed that a final roadmap will be issued wherein the existing settlement and clearing system will be replaced by the Blockchain based technology. In this process, ASX will become the world’s first stock exchange to embrace the Blockchain based technology for post-trade settlement. ASX also owns a stake in Digital Asset, a Blockchain startup managed by Blythe Masters, former chase executive in JP Morgan.

Last week’s consultation paper report stated that the migration test will commence from the second quarter of the year 2020. The system will be tested in accordance with whether it can handle up to 10 million transactions every day as a part of the testing phase. As the new system is totally based on distributed ledger technology one has to obtain clearance before getting any access to use it and beside that ASX will have a centralised control over the system.