Citing concerns about operational risk at the Australian Securities Exchange (ASX), following a major settlement failure in late 2024, Australian regulators are pushing the exchange to step up efforts to guard against outages.
The Reserve Bank of Australia (RBA) and the Australian Securities and Investments Commission (ASIC) sent a joint letter to the ASX signalling their concern about operational risks at the exchange, in the wake of an incident in December last year that saw a failure involving the exchange’s settlement system, known as CHESS.
According to the ASX, the issue arose due to a defect in the system’s memory allocation logic “that meant ASX was not able to complete batch settlement for the cash equities market on that day” and that it had to reschedule the settlement process to the next day.
In their letter, “… the regulators expressed their deep concerns about the potential for operational incidents… to affect the ability of the CHESS system to reliably service the Australian equities market until CHESS is replaced,” the ASX said.
They also highlighted their concern about the ASX’s response to the initial incident.
As a result, the ASIC directed the ASX to bring in an outside expert to carry out a technical review of the existing settlement system.
“This review and any remediation will provide greater confidence to regulators, and the public, in the stability and operational resilience of the current CHESS platform,” it said.
“The technical review of ASX’s core technology infrastructure is necessary given the ongoing concerns the regulators have raised about ASX’s operational resilience. It is troubling that these risks were realized in this major incident,” said Joe Longo, ASIC chair, in a release.
Additionally, the RBA downgraded its compliance assessment of ASX subsidiaries, ASX Clear Pty Ltd. and ASX Settlement Pty Ltd.
The regulators also warned that they are prepared to take further action if their concerns aren’t adequately addressed.
In response, the ASX acknowledged the severity of the settlement incident, and outlined its ongoing work to address the event and to prevent future failures.
“ASX has been executing an action plan in response to the incident to minimize the risk and impact of potential future incidents and enhance overall system resilience, but more needs to be done and we must act with greater urgency,” said David Clarke ASIC chairman, in a release.
“Management has commenced work to establish a new enterprise-wide program that goes beyond immediate actions to respond to the settlement incident and this will comprehensively address the regulatory concerns and expectations,” he added.
Additionally, Helen Lofthouse, ASX managing director and CEO, said that the company has “been investing heavily in modernizing our systems and our project to replace CHESS underway. The delivery of the clearing services component is planned for between March and April next year and the first stage of industry testing commenced at the end of last month.”
“Taking action to increase confidence in the reliable operation of CHESS is an ongoing priority for ASX,” she said, adding that it will work with the ASIC to find an external expert to, “review the work we have already undertaken and advise on what more we can do.”
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