Australian main exchange ASX Ltd. is being sued by regulators for allegedly misleading the market about the status of its project to replace its clearing system — a project that ultimately failed and resulted in the company taking a A$250 million write down.
The Australian Securities and Investments Commission (ASIC) said the country’s biggest exchange company, ASX, misled the public in February 2022 when it said its Clearing House Electronic Subregister System (CHESS) replacement project was “progressing well” and “on track” for an April 2023 launch.
“Those representations were misleading and deceptive because, at the time of the announcements, the project was not tracking to plan and ASX did not have any reasonable basis to imply the project was on track to meet future milestones,” ASIC said in a release.
In fact, about six weeks later, on March 28, 2022, ASX announced the launch would likely be delayed, and it hired a consultant to review the project.
After that review, which identified “significant challenges” with the solution design, ASX decided to pause the project and it took a A$250 million write down.
“ASX’s statements go to the heart of trust in the integrity of our markets. We believe this was a collective failure by the ASX board and senior executives at the time,” said ASIC chair Joe Longo, in the release.
“Companies and market participants rely on what the ASX says about its operations to make their own decisions and investments. We expect the ASX to be a place to list and invest with confidence. When the ASX falls short, it has wide ranging consequences across the market,” he added.
ASIC said the delay in the project undermined confidence in the market and resulted in “significant cost” to both ASX and to market participants.
The regulator noted that it has yet to determine the penalty that it will seek for ASX’s alleged violations.
In a statement, ASX CEO and managing director Helen Lofthouse said, “We recognize the significance and serious nature of these proceedings. We cooperated fully with ASIC’s investigation and are now carefully reviewing and considering the allegations.”
“We play a critical role at the centre of Australia’s financial markets, and continue to focus on supporting and delivering for customers. We are committed to taking ASX forward, and have made strong progress as an organization over the past two years,” she said.
Earlier this month, ASX released a consultation paper on its proposed plan for its new clearing system replacement project, and its plan for a potential shift to T+1 settlement cycle.