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Securities exchange operator ASX Limited (ASX: ASX) has agreed to pay a $20.5 million penalty to settle civil proceedings brought by the Australian Securities and Investments Commission (ASIC) in 2024 over its troubled CHESS replacement project.
ASX has admitted that a February 2022 market announcement stating the project was "progressing well" was misleading, with the market operator announcing today that the settlement brings an end to the matter.
In addition to the penalty, ASX will contribute $3 million towards ASIC's legal costs under the settlement, which remains subject to Federal Court approval.
ASIC launched the proceedings in August 2024, alleging ASX had made three misleading representations about the status of the blockchain-based project to replace its Clearing House Electronic Subregister System (CHESS).
Under the agreed resolution, ASX admits to one contravention - that its statement the project was "progressing well" was misleading - while ASIC dropped two other allegations relating to representations that the project was "tracking to the published plan" and "tracking to go-live in April 2023".
The admission marks the culmination of one of the most costly technology failures in Australian financial market history.
ASX paused the CHESS replacement project in November 2022 after an independent review by Accenture found the software solution was not fit for purpose, forcing the exchange to derecognise about $250 million in pre-tax project costs.
ASIC chair Sarah Court says the misleading statement risked undermining confidence in Australia's financial markets.
"ASX has admitted to making a misleading statement in relation to critical market infrastructure at the centre of Australia’s financial system," says Court.
"These admissions concern the accuracy of disclosures to the market about a significant and complex project that carried real consequences for confidence, planning, and investment across the market.
"Accurate and timely disclosures are fundamental to maintaining trust in Australia’s financial markets, particularly from entities that operate core market infrastructure."
In a statement to the ASX today, ASX chair David Clarke has apologised for the contravention, framing the settlement as a step that will allow the organisation to focus on delivering its replacement clearing and settlement system.
“The market must have confidence in what ASX says about its operations as these statements can be relied upon to make decisions," says Clarke.
"When we stopped the CHESS project in November 2022 to reassess our whole approach, that tested market confidence in ASX and called into question the nature of statements previously made.
“As the market operator and a steward of critical market infrastructure, our words matter. I am sorry ASX fell short."
Clarke says ASX has recognised the impact this has on trust and confidence.
"We take responsibility for the lessons that must be learned from that experience," he says.
“The CHESS project is now on firmer footing, and our decision to settle this matter reflects the desire by the board to focus ASX on building for the future while maintaining the work still required to build confidence and deliver for the market."
Clarke says ASX will continue the "reset" across the group, informed by the findings of a separate ASIC inquiry report delivered earlier this year.
The original CHESS replacement project, which ASX had pursued using distributed ledger technology developed by Digital Asset, was intended to modernise the system underpinning the clearing and settlement of equity transactions on the Australian market.
Its failure prompted ASIC to establish a distribution program of up to $70 million for market participants who had incurred costs preparing for the abandoned system.
ASX has since adopted a conventional technology approach for the replacement.
The exchange revealed on 20 April this year that the first release of the new CHESS system had gone live and had already processed more than seven million transactions.
Release 2 of the new system, which covers settlement and subregister services, is estimated to cost between $270 million and $320 million, with a target completion date of 2029.
ASIC's case against ASX was narrowed from three contraventions to one under the agreed terms, with the regulator accepting that dropping the two additional allegations was appropriate in the context of achieving the settlement.
The proposed $20.5 million penalty and consent orders must still be approved by the Federal Court, with a hearing date yet to be scheduled.
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