TLDR
- Australia’s securities regulator ASIC is suing ASX, the country’s largest stock exchange operator
- The lawsuit alleges ASX made misleading statements about its blockchain-based clearing system upgrade
- ASX claimed the project was on track in February 2022, despite internal knowledge of delays
- The blockchain upgrade project was ultimately cancelled in November 2022
- ASX could face significant fines, potentially up to A$500 million according to reports
The Australian Securities and Investments Commission (ASIC) has taken legal action against the Australian Securities Exchange (ASX), the country’s largest stock market operator. The lawsuit, filed on August 14, 2024, claims ASX misled the public about the progress of a major software upgrade project.
ASIC alleges that ASX broke the law when it stated in a February 2022 trading update that its new blockchain-based clearing and settlement platform was on track to launch the following year. According to the regulator, ASX had been aware for seven months that the project was falling behind schedule.
The software upgrade was meant to replace ASX’s Clearing House Electronic Subregister System (CHESS), which had been in use since the 1990s. ASX first announced plans to upgrade the system using blockchain technology in 2016. The project was initially set to go live in April 2023.
ASIC Chair Joe Longo called the situation a “collective failure by the ASX board and senior executives at the time.” The regulator claims that by late 2021, ASX had internally rated the project status as “red,” indicating significant risks to the delivery timeline.
Despite these internal concerns, ASX publicly stated in February 2022 that the project was “progressing well” and “on track for go-live” in April 2023. ASIC argues that these statements were misleading and risked damaging the integrity of Australian financial markets and investor confidence.
The blockchain upgrade project faced multiple delays before being cancelled entirely in November 2022. This decision resulted in a write-down of approximately A$250 million (US$168 million) for ASX.
ASIC’s lawsuit seeks unspecified fines from ASX. Some reports suggest the exchange could face penalties of up to A$500 million (US$330 million), though the exact amount has not been confirmed.
ASX CEO Helen Lofthouse, who took on the role in August 2022, acknowledged the seriousness of the situation.
“We recognize the significance and serious nature of these proceedings,”
Lofthouse said in a statement. She added that ASX is reviewing ASIC’s allegations and cooperated fully with the investigation.
The lawsuit has raised questions about corporate governance at ASX. ASIC pointed out that while ASX provides governance recommendations to listed companies, its own conduct “undermined the principles it promotes for itself and other listed entities.”
Following the news of the lawsuit, ASX’s shares dropped by as much as 4% on August 14, underperforming the broader market.
ASX now expects to complete the CHESS replacement project by 2029, working with a new supplier, India’s Tata Consultancy Services. The exchange is set to announce its annual profit on August 18, 2024.
ASIC’s Joe Longo emphasized the importance of the CHESS replacement project, calling it “critical national infrastructure crucial to the operation of the Australian economy.” He stressed that the project must be managed effectively and transparently to maintain confidence in Australia as an investment market.
The legal action comes after ASIC itself faced criticism from a Senate inquiry earlier in 2024 for failing to foresee the full extent of problems with the ASX upgrade project.
As of August 14, 2024, ASIC has not yet determined the specific penalty it will seek in the lawsuit against ASX. The case is ongoing, and further developments are expected as the legal proceedings unfold.
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