ASX Speeds Ahead With Blockchain Trading

While many organizations are still in the pilot stage with blockchain technology, the Australian Securities Exchange (ASX) is racing to implement a new distributed ledger system for clearing trades.

The ASX move is being watched closely by other exchanges in the global equities community as it replaces its existing CHESS record keeping system with distributed ledger technology (DLT).

The public consultation for the implementation will begin next month, and the system could be up and running live by the end of 2018.

The ASX has been examining DLT for more than two years as concerns mounted over the durability of CHESS, which has been in place since the 1990s. 

The system had a significant hardware failure in 2011, and then another outage in August 2015.

Vendor Digital Asset has been selected to deliver the new blockchain system, and the ASX has a stake in the venture after investing AUD 15 million in the US-based company in 2016.

If the DLT system delivers as expected, then the ASX can have a stake in its success with some other exchanges likely to follow their lead.

The ASX says the move puts it in the forefront of equities trading "innovation," but it is also now in the unique position of operating a pilot for a system it can prove, and then sell.

Some traders in the Australian market view this as a risk for the ASX. While the DLT is expected to save tens of millions of dollars in transaction costs, if it can be hacked it would be, in the words of one stockbroker, “game over” for the ASX.

As with all private blockchain systems, Digital Asset’s solution is a secure private encrypted network where all participants are known to all others and have ongoing access based on compliance conditions.

In theory, it should deliver new levels of security, although this is unproven in practice.

Another key criterion for success will be durability, as this is mission critical infrastructure for a securities exchange.

Digital Asset raised a further USD 40 million in October 2017 from a group of investors linked to Tony James, the president of Blackstone.   

This fund injection brings to USD 110 million total raisings for the company so far, positioning it to be a major vendor of financial blockchain systems globally.

Other investors include Goldman Sachs, Accenture, JPMorgan Chase and IBM.

Other exchanges are in preliminary discussions with the company.

Digital Asset is also working with main US clearing house, DTCC, on a blockchain system to speed up the settlement of repurchase agreements, used by financial players to raise short-term financing.

In Switzerland, SIX Securities is working with Digital Asset on a proof of concept pilot in that country’s financial markets.