2024-08-16 05:38:19
The Australian Stock Exchange (ASX) is an unusual exchange in the financial world.
It is the operator of Australia’s largest stock exchange and as such “needs to ensure that each of its licensed markets is fair, orderly and transparent”.
At the same time, it is also a public company listed on the exchange. It is like we recruit a shepherd of the flock by selecting one sheep.
This does not mean the ASX is doing anything wrong, or has ever done anything wrong. But it has been a well-known potential conflict of interest since the 1990s.
More information from Lukas Coch/AAP
When the ASX was listed itself This is a first in the world for a company to be listed on its own exchange.
This has witnessed various Regulatory functions to Australia’s corporate regulator, the Australian Securities and Investments Commission (ASIC).
Therefore, for ASIC, submitting litigation On Wednesday, the Australian Securities Exchange (ASX) accused it of misleading the market, a charge that is significant.
But what exactly happened with the ASIC allegation and why is a company’s announcement so important?
What are ASIC’s allegations?
At issue was the exchange’s claim that it was replacing “CHESS”, a key piece of software used to settle trades. The Australian Securities and Investments Commission (ASIC) alleges that the ASX told the market the project was progressing well, knowing that it was not.
according to Joe Longo, Chairman of the Australian Securities and Investments Commission:
The ASX statement strikes at the heart of trust in the integrity of the markets. We believe this was a collective failure by the ASX board and senior management at the time.
ASX CEO Helen Lofthouse explain The company acknowledged the “importance and seriousness of these lawsuits.”
Mr Lofthouse said the ASX was currently “carefully reviewing and considering the allegations” and was “cooperating fully” with the investigation.
What is CHESS and why does it need to be replaced?
One of the most important functions of the ASX is to provide a system for recording and settling share trades. The current system is the Clearing House Electronic Subregister System (CHESS), which has been in use since 1994.
But over the past decade or so, it has been recognized that the technology CHESS relies on is outdated and needs to be replaced.
According to ASIC Record keeping In the Federal Court this week, the Australian Stock Exchange decided it would replace CHESS in early 2016. By December 2017, it had partnered with a company called Digital Asset to develop the technology.
The new system will be based on blockchain technology, an innovation that is exciting markets around the world and will make Australia a world leader.
Joel Caret/AAP
In March 2020, ASX announced that the launch of the CHESS replacement project, originally scheduled for April 2021, would have to be postponed. In October, ASX announced a new launch date: April 2023.
In mid-2021, the ASX released an implementation timetable and said it was still “on track” to go live in April 2023. But ASIC claims that despite the lack of “full functionality”, the ASX opened an “industry test environment” in November 2021.
The regulator claimed that around 100 flaws in the app “had not been addressed”.
According to the documents, the ASX’s own audit and risk committee was told that the CHESS replacement project was in “red” status on February 3, 2022, meaning there was a high probability that the project would not be completed on time.
Despite this, when the ASX released its half-year results about a week later, it misleadingly stated the project was “progressing well” — and was still on track to go live, ASIC claims.
In September 2022, consulting firm Accenture was hired to review the project. By November, the ASX had suspended the project.
The pre-tax cost has been around A$250 million. Plans to use blockchain technology to replace CHESS have now been abandoned.
Why does all this matter?
Both the Australian Stock Exchange (ASX) and the corporate regulator, the Australian Securities and Investments Commission (ASIC), require a fully informed securities market to function properly. There are a number of laws relevant to this need.
Under the Australian Securities and Investments Commission Act, the corporate regulator clearly states that Required “Maintaining, promoting and improving the performance of the financial system”.
Under the Corporations Act, which is administered by the Australian Securities and Investments Commission, companies must Continuous Disclosure Release material information to the market that could affect its share price.
More generally, the principle seeks to prevent market manipulation and insider trading by companies listed on stock exchanges by preventing misleading or false statements.
Through this litigation, the Australian Securities and Investments Commission (ASIC) has focused on broader expectations for all listed companies in relation to disclosure and accuracy of information.
Unless a settlement is reached early, the matter will be decided according to the usual court procedures and future hearings. Investors and regulators will be watching closely.
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