The Australian Securities Exchange’s (ASX) regulators have taken action to address their increasing concern over its management of operational risk in the wake of the failure of a key system in December 2024.
The Australian Securities and Investments Commission (ASIC) has directed the ASX to engage an expert to review the Clearing House Electronic Subregister System (CHESS), which facilitates securities transaction clearing, settlement and registration.
The Reserve Bank of Australia (RBA) has downgraded its assessment of ASX Clear Pty Limited’s and ASX Settlement Pty Ltd’s compliance with the RBA’s Operational Risk standard from ‘partly observed’ to ‘not observed’, which means it has serious issues of concern that warrant immediate action.
A significant technical issue with CHESS on 20 December 2024 caused batch settlement failures, which meant that trades due for settlement on 20 December could not be processed until 23 December, which was the following business day.
In a joint letter to the ASX, the regulators expressed their deepest concerns about the potential for operational incidents to affect CHESS' ability to reliably service the Australian equities market until the system is replaced in two phases in 2026 and 2029.
The regulators also highlighted their concern about the speed and nature of ASX’s remediation actions following the initial incident.
The RBA said reassessing compliance outside the usual annual assessment cycle was unprecedented.
"It is deeply disappointing that the regulators need to take these actions today. But they are necessary,” RBA Governor Michele Bullock said in a media release.
“The underlying issues that we have raised need to be addressed as a matter of priority to strengthen the resilience of the CHESS system.”
ASIC Chair Joe Longo said the regulators’ actions underscored their increasingly deep concerns about ASX’s management of the CHESS system and they would continue to consider further action.
“The technical review of ASX’s core technology infrastructure is necessary given the ongoing concerns the regulators have raised about ASX’s operational resilience. It is troubling that these risks were realised in this major incident,” Longo said.
At the time of writing, ASX shares were $1.34 (2%) lower at A$65.64 (US$41.35), capitalising the company at $12.8 billion.
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