RBA will keep a close eye on ASX’s CHESS and its replacement software

ASIC and the Reserve Bank of Australia have informed the Australian Securities Exchange (ASX) that they are monitoring their CHESS replacement project after a failed year-long attempt to replace the settlement system with one based on distributed ledger technology.

ASIC has ordered ASX to hire consultancy EY to conduct an audit of the “support and maintenance” of its clearing settlement system, with chairman Joe Longo calling CHESS a “critical financial market infrastructure”.

The writing of the RBA [pdf] requires the ASX to offer a public pledge that it can continue to support CHESS in its existing form – including through continued access to programmers trained in the correct language (presumably COBOL).

RBA expectations also include compliance with financial stability standards, which include business continuity and safeguards; Identify what upgrades are required to keep CHESS operational until its replacement is ready; Consultation with stakeholders on the future of CHESS; and the release of “key details and timelines for all upgrades.”

Before the replacement project ran into trouble, the ASX had decided to delay the implementation of two features. These are compliance with the financial industry’s ISO 20022 Universal Message Scheme and increasing trading capacity to over 10 million trades per day.

The RBA wants the ASX to “explain its plans for these features.”

The regulator has also ordered the exchange to implement four recommendations it made in its 2021/22 assessment of the ASX [pdf]:

  • a feasibility study on intraday margining of cash positions; assess the account structure;
  • by December 2023, submit a plan to implement “omnibus or individual customer separation”; and;
  • complete an analysis of some of its legal powers.

CHESS replacement

Given the failure of the blockchain-based replacement project, it’s no surprise that the RBA is closely monitoring the exchange’s plans.

The bank has proposed six actions the ASX must take, including a public response to the Accenture report’s 45 recommendations, including disclosing to regulators and stakeholders the “risks and benefits” of the next iteration of its CHESS replacement, with a detailed Description of what the backup plan sees the CHESS replacement coming late and gives regulators “full and unrestricted access” to ASX’s new delivery partners.

The RBA also requires another backup plan from the ASX “if the selected CHESS backup solution cannot be implemented.”

In addition, it said: “ASX will publish its project and implementation timeline with dates for important milestones on its website.

“This plan should have a new and credible go-live date for the CHESS replacement.”

The RBA has also issued a number of project governance requirements.

The processes are to be made public and the ASX must seek external advice to resolve conflicts between its commercial interests and its financial stability obligations.

The ASX responded in a letter [pdf] to say that it will meet the requirements of the two regulators.

https://www.itnews.com.au/news/rba-to-keep-a-close-eye-on-asxs-chess-and-its-replacement-589153?utm_source=feed&utm_medium=rss&utm_campaign=iTnews+ RBA will keep a close eye on ASX’s CHESS and its replacement software

Callan Tansill

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