In a strategic shift, the Australian stock exchange operator ASX (ASX.AX) has enlisted the expertise of Tata Consultancy Services (TCS.NS) to revamp its clearing and settlement software. This decision marks a significant departure from its 2017 commitment to embrace blockchain-like technology for critical financial architecture, a venture that faced repeated delays before being abandoned last year amid criticism.
The move to engage TCS reflects a more cautious approach, as ASX plans to adopt the new software incrementally rather than pursuing a risk-laden “big bang” changeover, as initially contemplated. The timeline for the overhaul now extends to 2029, a 13-year endeavor since its inception.
TCS, a prominent Indian-listed company, boasts a mature software product used by exchanges globally, including those in Finland and Canada, for functions analogous to ASX’s Clearing House Electronic Subregister System (CHESS). ASX Chief Information Officer Tim Whiteley emphasized TCS’s mature product and technology, which minimizes the need for extensive customization.
Vivekanand Ramgopal, TCS’s president of banking products, expressed confidence in their ability to deliver on this mission-critical business. The ASX contract, according to Ramgopal, is “an affirmation of our track record.”
The decision to abandon the earlier blockchain-based initiative came after an external review revealed the necessity for substantial code rewriting. Digital Asset, the New York-based startup initially contracted by ASX, declined to comment on the recent development. The failure resulted in a notable A$176.3 million writedown, impacting market participants’ confidence in ASX, the 17th largest exchange globally, hosting companies with a combined value of A$1.6 trillion ($1 trillion).
The Australian Securities and Investments Commission (ASIC) initiated an investigation into ASX’s disclosures regarding the failed blockchain project. ASIC Chair Joe Longo commented on ASX’s recent decision, stating that it is crucial for the exchange to focus on engaging with the market for the detailed design of the CHESS Replacement program, emphasizing the need for a realistic and achievable implementation timeline.
While ASX shares saw a 1.7% increase in afternoon trade following the announcement, analysts expressed both support for the project reset and reservations about the extended implementation timeframe. Jarden analysts, in a client note, acknowledged the positive strategic step but highlighted lingering uncertainties over medium-term operating costs and capital expenditure implications.
ASX provided cost estimates for the initial stage of the new project, citing a range between A$105 million and A$125 million for the clearing software, with delivery expected around 2026. The cost and timing for settlement and other software components will be determined in 2024.
In conclusion, ASX’s decision to partner with TCS for the overhaul of its clearing and settlement software signifies a strategic pivot away from its blockchain-focused initiative. The move towards a phased implementation approach reflects a commitment to minimizing risk and ensuring a smoother transition. As ASX navigates this transformative journey, market participants will be keenly observing the detailed design and realistic timelines for the CHESS Replacement program.
