The Australian Securities and Investments Commission (ASIC) and the Reserve Bank of Australia (RBA) have welcomed the recent announcement by the Australian Securities Exchange (ASX) regarding its solution design to replace the Clearing House Electronic Subregister System (CHESS). The regulators consider this development as a crucial step toward getting the CHESS replacement program back on track.
ASX's solution design, which includes a product-based solution and the selection of a vendor, has been endorsed by a small group of industry leaders known as the ASX Cash Equities Clearing and Settlement Advisory Group (Advisory Group). This group, led by independent chair Alan Cameron AO, provides strategic advice to ASX Clear and ASX Settlement on clearing and settlement matters.
ASIC Chair Joe Longo emphasised the importance of ASX's decision but also stressed the need for continued progress, saying, "There is still a long way to go to deliver a CHESS replacement. It will be critical for ASX to now focus on engaging with the market on the detailed design of the CHESS Replacement program with a realistic and achievable timeline for implementation."
The Advisory Group has evaluated ASX's product-based solution and recommended that it is a suitable option to support a safe and timely replacement of CHESS. Additionally, the group called on ASX to provide clear statements regarding the industry's impact, benefits, and its commitment to building an interoperable system. The importance of competition in clearing and settlement legislation and regulatory support for interoperability was also highlighted.
Mr. Longo expressed his gratitude to Alan Cameron and the Advisory Group for their valuable input, emphasising their ongoing role in advising on the CHESS replacement program and other strategic clearing and settlement issues.
RBA Governor Michele Bullock noted that the Advisory Group played a pivotal role in considering the interests of the entire market in reaching the decision. She highlighted the group's continued importance throughout the implementation phase of the replacement solution and urged ASX to address issues from external audits and reviews to avoid repeating past program-related problems.
In the near future, ASIC and the RBA expect ASX to release a special report covering the current portfolio, program, and project management frameworks of ASX Licensees, along with an assessment against internationally recognised standards. Additionally, ASX will publish an external audit of this report conducted by Ernst & Young.
ASX is also tasked with ensuring the ongoing maintenance of the existing CHESS system to meet resilience, reliability, integrity, and security requirements. Both ASIC and the RBA will closely monitor this aspect.
Replacing CHESS is a complex and technically challenging endeavor, necessitating robust and transparent governance arrangements to manage associated risks effectively.