Australian bourse operator admits to misleading market
Australia’s stock exchange operator has apologized and will pay a $20.5 million fine to the corporate watchdog after admitting it misled the market.
The agreement means ASX Ltd will avoid a hearing over three statements it made four years ago about the status of a multi-million dollar project to improve the clearing and settlement system.
The work on CHESS involved replacing the 25-year-old technology with a distributed ledger, the same technology used by cryptocurrencies such as Bitcoin and Ethereum.
The ASX told investors in a statement in 2022 that the project was “progressing well”, but the Australian Securities and Investments Commission took legal action, saying this and two other statements were misleading and “exposed market participants to the risk of financial harm”.
As part of the settlement between the exchange operator and the commission, and pending Federal Court approval, the ASX will pay a $20.5 million penalty and pay a further $3 million in addition to the regulator’s legal costs.
“The market should have confidence in what the ASX says about its operations because those statements can be relied upon to make decisions,” ASX chairman David Clarke said on Monday.
“When we halted the CHESS project in November 2022 to reassess our entire approach, this tested the market’s confidence in the ASX and called into question the nature of the disclosure previously made.
“I’m sorry the ASX fell short.”
The commission accepted the “going well” declaration and withdrew the proceedings regarding the remaining two declarations.
The new CHESS system went live in April, after the upgrade was first approved in 2016.
Former chief executive Helen Lofthouse told the AAP on her departure in April that she had to make a tough decision on the project because she had not been successful in it when she took the top job in 2022.
Pulling the plug sparked legal action and angered investors and trading firms who had invested millions in their own upgrades to work with the experimental technology.
The ASX eventually regrouped and developed a new system to replace CHESS, a system that still runs on the decades-old computer language COBOL.
The new system will be able to accommodate three times more volume than the current system, will be faster and will be cloud-based, and the exchange’s main partner will be Amazon Web Services.
The second phase, which will carry out settlement activities, is aimed to be delivered in 2029.
ASX interim chief Darren Yip said on Monday that CHESS had continued to deliver a strong performance since April, handling high trading volumes during a recent period of high global market volatility, underlining its “flexibility and scalability”.
The ASX said the penalty and settlement costs would be accounted for as non-recurring and material items respectively in its future accounts.
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