Following on from its most recent trading update, which showed average trading activity recording a 30% year-on-year increase across both cash and equities and derivatives, exchange operator ASX (ASX: ASX) has taken measured steps to counter its own operational shortcomings.
In an effort to reduce costs and redirect investment the ASX commenced a redundancy round on Monday.
While an initial 100 jobs are expected to be axed across its business – accounting for around 8% of permanent employees and contractors - the final headcount won’t be known until next week.
In response to questions about job cuts the company reminded the market that operating efficiently was an ongoing priority for the ASX.
“No decisions have been finalised at this time and our focus is on engaging transparently with our people and supporting them through this process.”
Current sackings are being framed as the ASX’s response to intense regulatory scrutiny.
However, the Australian Securities and Investments Commission (ASIC) has given the company a long gestation period to fix systemic operational risks embedded within its Clearing House Electronic Subregister System (CHESS), which facilitates securities transaction clearing, settlement and registration.
Days before Christmas, the ASX experienced tech outages that brought the settlement of trades on the bourse to a standstill.
Brokers were left having to find an estimated $3 billion in trades yet to settle. Much of the short-term funding issue related to brokers having paid all their clients with their own funds despite not being paid by the ASX.
As the central clearing participant (CCP) for all Australian stock markets, the bourse is required to settle equity trades on what’s known as T+2 — a two-day delay after execution.
Whitefield Capital Management managing director Angus Gluskie described the pre-Christmas outage – the worst since the ASX trading system collapsed for a single day in November 2020 - as a palpable concern for the market.
Two months earlier the Reserve Bank of Australia (RBA) wrote to the exchange’s leadership expressing a loss of confidence in the ASX’s ability to manage critical market infrastructure.
The corporate regulator has also advanced legal action against the ASX for failing to flag investors that it would be writing off $250 million on a replacement CHESS it knew was going to fail.
The root cause of settlement delays is the CHESS system’s aging legacy COBAL coding language which the ASX has struggled to fix. ASX attempts to replace its 31-year-old settlement system have not gone well.
The exchange is now pursuing a revised CHESS project and last November and prepped the market to expect possible delays on the 2026 start of its CHESS program.
The company also reiterated the expected delivery of its CHESS Release implementation in 2029.
This week’s redundancy announcements follow on the heels of a recently released resourcing plan which revealed that some parts of the exchange's CHESS technical support were “stretched in the event of a multi-day incident”.
Interestingly, while the regulatory pressure being experienced by the ASX relates directly to its ailing CHESS system, the latest redundancies exclude roles related to the CHESS project and an upgrade to risk management.
In light of mounting RBA and ASIC scrutiny of ASX’s operation, ASX CEO Helen Lofthouse recently told employees the exchange needed to “find efficiencies” that would allow it to redirect investment and resources.
While Lofthouse stressed the need for operational efficiencies, she also conceded that redundancies would be “difficult and unsettling”.
A targeted restructure by the ASX that targeted $11 million in annual savings, saw employee numbers culled by around 3%.
In light of the “execution and regulatory risks” surrounding the ASX’s CHESS replacement, plus ongoing cost pressures, most brokers maintain a Sell or Hold recommendation on the stock.
ASIC and the ASX are expected to face off against each other at a Federal Court case management hearing on 4 June.
The ASX will host an investor strategy day on June 12, and investors should take particular note of its guidance on operating and capital expenditure.
