But ASX is now replacing CHESS with a next generation post-trade platform using contemporary technology. ASX expects the shift will make the sharing of vast volumes of data more efficient and lead to cost savings for its customers.
Australia's equity market the ASX has made a decision to replace its CHESS system to record changes in shareholding with distributed ledger technology found in blockchain. The proposed timing for transition is expected to be released for market feedback at the end of March 2018. ASX will be the first primary exchange to migrate to Blockchain but other regulated exchanges are expected to follow suit. It will work similar to the blockchain that bitcoin trades on. Financial companies around the world have ramped up investment in the technology in recent years in the hope it can simplify and reduce the cost of back-office processes.
DLT brings tremendous value and will provide a standardised structure to synchronise the different systems or databases participants use, as well as instantly eliminate reconciliation issues, he said, adding blockchain technology is not as a bigger risk others may perceive it as. The platform would synchronize and standardize the exchange's database of equity trades.
Dominic Stevens, ASX Managing Director and CEO, said, "ASX has been carefully examining distributed ledger technology for nearly two-and-a-half years, including the last two years with Digital Asset, in order to understand its potential application".
"After so much hype surrounding distributed ledger technology, today's announcement delivers the first meaningful proof that the technology can live up to its potential", said Digital Asset's chief executive Blythe Masters, a former JP Morgan banker, in a statement.
Last year, Wall Street banks including JPMorgan and Citigroup Inc. successfully tested blockchain ledger technology on credit-default swaps. After two years of testing, the decision marks a major milestone in the global race to adopt blockchain, also known as distributed ledger technology, in large-scale financial markets.
CHESS (Clearing House Electronic Subregister System) is the system used by ASX to record shareholdings and manage the clearing and settlement of equity transactions in Australia (exchanging the title or legal ownership of financial products for money when buying or selling the financial products is referred to as settlement). JPMorgan in October rolled out its latest pilot program to use blockchain to enable faster, more secure transfers of cross-border payments between it, Royal Bank of Canada and Australia & New Zealand Banking Group Ltd. It does this while maintaining confidentiality and scalability - both critical for market infrastructures. The ASX, which invested $14.9 million in Digital Asset in January 2016, today announced it had subscribed to $US3.5 million in convertible notes at Digital Asset.