Australian Securities Exchange’s Blockchain Implementation Sees Friction
The Australian Securities Exchange (ASX) approach toward adopting blockchain technology as its post-trade processing platform for clearing and settlement is reportedly leaving stakeholders and brokers disgruntled.
According to a report in the Australian Financial Review, there is apprehension among stakeholders in Australia’s biggest securities exchange operator with its move to adopt blockchain technology as a replacement for its existing Clearing House Electronic Subregister System [CHESS].
A significant concern is stakeholders’ confidence, or lack thereof, in the ASX maintaining its profit margins during the experimentation process and possible switchover with a critical and core financial market software. Whilst using the traditional and manual CHESS, the ASX has in the process, become the world’s most profitable major stock exchange. The report cites a profitability study that forecasts ASX to scale a profit margin of 77% in 2017, ahead of the Hong Kong Exchange with a forecast of 71%.
New ASX chief executive Dominic Stevens is, according to the report, under pressure from the company’s shareholders to maintain high profit margins and its high dividend payout ratio that makes the ASX appealing to retail investors. Some investors believe that maintaining these high margins will take a toll on investments elsewhere, particularly in technology.
The lack of appetite for change is further compounded by the recent extension of ASX’s monopoly with clearing and settlement for another 18 months by Australian federal Treasurer Scott Morrison. The announcement of the extension has led to further confidence among investors that the ASX will continue seeing its high-profit margins while sticking to its existing CHESS infrastructure.
The report also points toward frustrations among brokers at the exchange about the ASX’s field-testing of the blockchain solution developed by New York-based enterprise startup Digital Asset Holdings (DAH). The ASX invested AUD $14.9 million for a 5% stake in the blockchain firm in January 2016. While DAH is developing the custom distributed ledger solution put to test by the ASX, brokers reportedly believe that the solution is not incorporating the new features and services they seek.
The report also notes that brokers see the ASX ignoring their demands for automation in the replacement software for CHESS in its first phase for processes currently done manually.
The ASX first announced its replacement blockchain solution in January 2016. Former ASX CEO Elmer Funke Kupper described the blockchain-based switchover as a “once in a 20-year opportunity” and has hinted throughout 2015 about the company’s interest in using distributed ledger solutions for its post-trade processes.
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