The Australian Securities Exchange (ASX) is ramping up work on its project to replace the existing Clearing House Electronic Subregister System (CHESS) platform with another platform based on distributed ledger technology (DLT).
The ASX has been working on the CHESS replacement project since 2015, teaming up with blockchain startup Digital Asset. It announced on Monday that it was also securing the assistance of VMware, signing a three-party memorandum of understanding (MOU) that will see work be conducted on DLT initiatives in Australia.
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Under the MOU, ASX said it plans to provide its DLT offering with the support of Digital Asset and VMware, which will include the development of the application to replace CHESS; the support of DAML, the open source smart contract programming language used to build distributed applications; and the provision and support of the distributed ledger and associated infrastructure, which delivers ASX’s data privacy, confidentiality, and security requirements at a greater scale.
The ASX said that while it remains initially focused on the replacement of CHESS, the partnership would strengthen its ability to support the financial services industry by using the infrastructure to create new services and innovations beyond clearing and settlement.
The parties said the MOU would also allow them to combine powers to provide and support DLT solutions to other customers in Australia and New Zealand.
“This new partnership is a very positive development that will help us support a wider range of DLT solutions developed by the industry. It confirms our belief in the potential of DLT as we remain on track to deliver the CHESS replacement system in March-April 2021,” ASX deputy CEO Peter Hiom said.
CHESS has been running for around 25 years. There’s about AU$2 trillion worth of equities registered in CHESS. Per day, around AU$5 billion is processed through CHESS, and 300-500 transactions and up to 1,500 messages are processed per second.
The ASX is about 30-40% through its major functional build for the new system to replace CHESS, with the new system set to undergo industry-wide testing in 2020.
Software is being progressively deployed within ASX’s Customer Development Environment, where customers and their service providers have begun exploring the clearing and settlement functionality of the new system.
CHESS sits at the heart of banks and brokers as they exchange information about trading; CHESS is constantly sending messages back and forth to reconcile the industry view of the clearing and settlement data for the Australian equities market.
Apart from the operator, everyone else operates on a copy of the data, so when changes occur, they need to be transferred across.
“For us, DLT-based CHESS is the next generation of market infrastructure, moving away from the notion of a central database messaging to distributed database shared with our customers, allowing for real time source of truth to be shared, whilst also preserving privacy and integrity,” ASX general manager of engineering and architecture David Campbell explained last month.
“It’s a shared, replicated ledger. We have a copy, our customers have a copy — anyone who takes a node has a copy of the ledger — all synchronised. Each transaction refers to the previous transaction, and is cryptographically signed by a legal approver. In that case, that legal approval relates to trust in the system and a very important element.”
Disclosure: Asha Barbaschow travelled as a guest of VMware to VMworld in San Francisco