As the Australian Securities Exchange closes in on the completion of its ambitious Clearing House Electronic Subregister System (Chess) replacement project, the operator is also focusing efforts on a new data delivery platform.

Although much attention has been focused on the Chess replacement project, ASX CEO Dominic Stevens said Thursday during a briefing for the exchange’s half-year results to Dec. 31, 2020 (1H21) that it is only one part of a much broader technology transformation program.

For example, looking at distributed-ledger technologies, Stevens said ASX has “a number of opportunities” it is working on with partners. To support this, in a few months, ASX will launch a cloud-based platform accessible to customers to allow easy use of Digital Asset’s open-source programming language, Digital Asset Modeling Language (DAML), Stevens said.

Digital Asset is developing the DLT-based platform that will eventually replace ASX’s equity clearing and settlement platform. In July 2020, the exchange invested a further $2 million in Digital Asset, bringing its total shareholding in the company to 8.7%.

Last year, the exchange decided to review the replacement timetable to allow market participants to focus on their day-to-day operational activities in response to the Covid-19 pandemic. After consulting further with the industry, ASX revised the go-live date to April 2023 to allow for extra industry testing.   

Stevens said the re-planning and re-sizing of the Chess replacement project addressed four issues: First, it accounts for greater scale to cover the increase in peak daily volumes, which Stevens said has grown 350% since the program began.

Secondly, it has included additional scope with functionality relating to the digitization of certain corporate actions. Thirdly, the plan has expanded testing and integration exercises, reflecting commentary from the industry about more comprehensive testing, particularly on transitioned data.

Lastly, it has given more time to account for the pandemic’s effects on ASX, system vendors, and market participants.

Stevens said the system as originally specified is “mostly functionally” built. The remaining work is related to non-functional features and changes to allow for greater scale and new functionality as part of the re-plan. “This will be complete in the middle of the year when ASX testing begins, before vendor and participant testing commences toward the end of the year,” he said.

The exchange also upped its capital expenditure guidance for its June 2021 financial year-end to around $85 million, from about $70 million previously, incorporating costs associated with the greater volume capacity and increased functionality for Chess and its other ongoing projects.

Stevens said ASX’s increased need for digitization has been led by what is now an “enlarged Chess.” When the ASX started the project three to four years ago, the equity market’s peak trading volumes hovered around 2 million trades per day, whereas today it stands at north of 7 million, which changes things, he said.

“I’m still a huge believer in the efficiencies that can be brought by effectively having a source of truth that is more available and more reliable and actually more accessible by people in the market,” he said.

While the Chess replacement was one of the very first major industry-wide tech projects that embraced DLT, other exchanges have been slow to incorporate the emerging tools. During a virtual discussion in November 2020, the heads of two major exchanges—Hong Kong Exchanges and Clearing (HKEX) and Nasdaq—said the potential for blockchain technology to disrupt the exchange market is “a bit of an overstatement.”

Adena Friedman, president and CEO of Nasdaq, and Charles Li, the former CEO of HKEX, agreed that while the technology is good grounding for building new markets from scratch, there are a lot of practicalities to implementing blockchain that make it a long-term evolution, rather than a short-term disruption.

Since Li’s position will soon be filled by Alejandro Nicolas Aguzin, who is currently CEO at JP Morgan’s International Private Bank, only time will tell if Aguzin agrees with Li and Friedman, or buys into what ASX and Depository Trust & Clearing Corporation are doing.

Data makes the world go ’round

Apart from all the work going into the Chess replacement project, Stevens elaborated on ASX’s other projects, one of which is the aforementioned DAML cloud-based platform, which launches in a few months.

Another is DataSphere, ASX’s data science platform aimed at solving data challenges. In September, David Raper, executive general manager for ASX’s trading services, told WatersTechnology that the exchange wants to figure out how to capture and monetize more of the data it creates. The initiative is something that the likes of the HKEX is still mulling.

At the time, Raper said ASX is working on a range of products that would allow traders, banks, brokers, asset managers, and custodians to understand the volatility of bonds and money market instruments, and the liquidity and concentration risks associated with particular securities.

On Thursday, Stevens told analysts and members of the media that DataSphere is operational and is working with customers on some early functionality around electricity data for Austraclear corporate actions—ASX’s settlement system and central securities depository for the wholesale debt market—and for bond liquidity functionality.

He said the exchange sees similarities with DLT and DataSphere, in that ASX hopes both technology initiatives will create a more efficient industry-wide ecosystem. “In broad terms, our technology contemporization program is an investment in our core businesses, while providing for other opportunities into the future,” he said.

ASX Trade refresh

Another project the exchange had underway for most of last year was the enhancement of its ultra-low latency cash market trading platform, ASX Trade. The refresh involved upgrading to the latest version of Nasdaq OMX’s Genium INET platform, which powers ASX trade, and which is now part of the Nasdaq Financial Framework.

The refresh went through several testing stages before being implemented over the weekend of Nov. 14, 2020.

Five minutes into trading on Nov. 16, 2020, ASX received initial reports from customers and determined that there was a technical incident. According to the exchange, a software issue causing a data problem was detected, which required ASX to close the market for the rest of the trading day.

Nasdaq and ASX identified the root cause to be a software issue that caused incorrect functionality in the tailor-made combinations order book. ASX said these combinations are used primarily by retail and institutional traders of equity derivatives, and enable the trading of multiple options in one transaction.

On Thursday, Stevens apologized again for the November outage and said it was particularly disappointing because while technology issues cannot be completely eliminated, the exchange had put in place steps to reduce the risk of their occurrence.

“In the long-run, upgrading and introducing new technologies is unquestionably a positive for reducing long-term risk, delivering value to the market, and strengthening the ASX franchise,” he said. “However, in the short-term, all technology changes have a degree of risk after a significant deployment.”