ASX CHESS Replacement Project
These additional comments relate to the ASX Clearing House Electronic Subregister System (CHESS) Replacement Project. CHESS is a critical piece of financial market infrastructure.
During the course of this inquiry, stakeholders raised a number of material issues with respect to the project. As someone who has served as a company secretary of a listed ASX200 company, the issues raised have caused me grave concern.
The concerns raised by Computershare, Link Market Services and the Australasian Investor Relations Association, relate to a broad range of matters including:
Risk management (including the appropriateness of the proposed methodology for rolling out of the project);
The business case justifying the project;
The consultation process;
In a response to a question taken on notice at a hearing, Link Market Services (Link) stated:
It is Link’s view that the manner in which the CHESS replacement project is being managed is resulting in confusion in the market about what the project will deliver to industry participants and what it will cost for participants to implement and therefore how it may alter the structure of the market and possibly extend ASX’s market position.
In supplementary submission dated 17 July 2020, ASX responded to the concerns raised. It stated:
Significant progress has been made in delivering the system that will replace CHESS…Despite statements to the contrary, the scope of change being implemented through the new system is the result of a very comprehensive consultation process with the market.
I should state that it is not for me (or this Committee) to assess the status of this project. Nor is it for me to weigh the merits of, and make a final determination regarding, the issues raised in relation to this project. I have neither the expertise nor the information to make an assessment. However, when such well respected stakeholders raise material concerns in relation to a project of such significance, then I consider myself obliged to raise my concerns in the public interest. I do not do this lightly.
Based on the ASX’s own submission, consultation has been undertaken since September 2016. Given the period of consultation, how can it be that such material issues are still being raised, by a range of stakeholders, in relation to the project?
In my view, there needs to be serious reflection on the part of the senior management and Board of Directors of the ASX Limited, by regulators (including ASIC and the Council of Financial Regulators) and all stakeholders. The market cannot afford this project to fail. Yet it is difficult to see how an optimal outcome can be achieved when there is such a diverse range of views amongst key stakeholders regarding the status of the project. Stakeholder alignment is key to the success of any major project; especially one as complicated as this.
A pathway needs to be identified which provides confidence to the market. This could involve the introduction of an independent governance structure. In addition, consideration should be given to the appointment of an appropriately qualified independent expert to conduct an urgent review of the current status of the project. If there are no issues, then an independent expert review will provide confidence to the market. If there are issues, then an independent expert could provide recommendations as to how the project could be progressed to ensure that all material issues are appropriately addressed.
It is my hope that appropriate action is taken as a matter of urgency to ensure the success of this project which relates to a critical piece of Australia’s financial market infrastructure.